Playing a Title Role : The Sell-Through Video Season Is Hot

To a home video industry starving for good news, this year’s fourth quarter is taking on mythic status. An unprecedented string of blockbusters is hitting the market within a 10-week period, each priced to sell directly to consumers.

Industry observers are calling it the biggest sell-through season ever--and the most competitive.

“If you look at the profile of these titles, and the amount of money that is being spent to tell consumers about their availability, it’s phenomenal,” said Paramount Home Video Vice President Jack Kanne.

The number of big titles flooding into the sell-through market this quarter--in comparison, only four titles went sell through in the fourth quarter of 1992--underscores a fundamental shift in the video business. Rental revenue, the industry’s traditional cash cow, declined last year, while the sell-through market grew into a $7-billion industry, up from $3 billion only five years ago.

Video companies have discovered that consumers are willing to buy more than the children’s movies that historically have dominated the sell-through market. But the question lingering over the fall splurge of offerings is how many videos will they buy?

“Twister” was the first blockbuster out of the chute this season, hitting stores Oct. 1. Within days, several major retailers were ordering more copies, suggesting “Twister” sales will easily surpass industry projections of 10 million units.

In the next few weeks, “Independence Day” and “Toy Story” will join the fray. Store shelves will also feature “Mission: Impossible,” “The Nutty Professor,” “James and the Giant Peach,” Disney’s direct-to-video “Aladdin and the King of Thieves” and “Flipper.”

Toss in the re-release of such classics as “E.T.,” “My Fair Lady,” “The Sound of Music,” “The Wizard of Oz” and “Willie Wonka and the Chocolate Factory” and video retailers are displaying some of the go-go spirit of the ‘80s.

“It’s going to be an incredibly hot season,” said Lyn Duncan, assistant vice president of video for the Wherehouse.

All the big titles are priced between $14 and $25, instead of the $60 to $100 studios charge retailers for titles targeting the rental market. Video stores will still rent the titles, but consumers will have the option of buying them at the low sell-through price.

“The rental side of the business is still a major source of revenue, but the real growth is in sell-through,” said MCA/Universal Home Video marketing Vice President Craig Relyea.

Much like their theatrical counterparts, home video executives have been jockeying for position, trying to find a week free of competing video releases to place their titles in stores in time to take advantage of the holiday season.

Most thought “Independence Day,” dubbed “the 800-pound gorilla” by one studio executive, would not be released to video until the spring of 1997. It was still earning enough at the box office earlier this month to place it in the weekly top 10 lists.

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However, Fox opted to forgo the customary post-theatrical waiting period to get the year’s biggest hit into stores for Christmas.

“No doubt everybody hoped ID4 would wait [until 1997], but how could they?” said Tom Adams of Adams Media Research, noting that the vast majority of videos are sold during the Christmas season.

MCA/Universal was so eager to get “The Nutty Professor” into the market for Christmas, it didn’t have time to arrange for the customary cross-promotional partners. It will be released on Nov. 12, 10 days before “Independence Day,” but the same day as “Mission: Impossible.”

Studios usually link sell-through titles with a grocery product to offer a rebate and share promotional costs, a key to driving sales in the supermarket and mass-merchant outlets like Wal-Mart. Warner Home Video, for example, is teaming with Tropicana and Fuji to offer instant rebates on “Twister.” They’ll also help pay for commercials in late November, almost two months after the release, an attempt to prolong Twister’s sales through the holiday season.

The studios are spending record amounts to promote their fourth-quarter titles. 20th Century Fox is reportedly spending $30 million on the campaign for “Independence Day,” including an extensive television campaign, to try to build the same type of anticipation generated by the theatrical marketing campaign.

“The potential is to push over the probables” who haven’t decided whether they want to buy the movie, said 20th Century Fox Home Video President Bob DeLellis. “In this case, if you can move the probables just one notch, that could mean millions of units.”

Although “Independence Day” is considered a sure-fire sell-through hit--the audience has already shown that it is a movie they want to see over and over again--the decision to take a movie sell through instead of rental is a difficult one, involving complicated mathematical calculations and marketing formulas. But it can make the difference of millions of dollars in revenue.

For example, “Jumanji” was considered a borderline sell-through candidate, posting about $100 million at the box office. It might have sold 500,000 units at the rental price of about $60, industry sources estimate, which would have produced $30 million. Instead, at sell-through pricing, it shipped 7.1 million units generating $89 million, according to Adams Media Research.

Until recently, most studios generally took only children-oriented titles that generated more than $100 million at the box office directly to sell-through. To studio executives, breaking the $100-million barrier proves a movie is able to attract repeat customers, a sign that it is the type of film kids will want to watch over and over again.

In recent months, though, that criteria has changed, as people’s enthusiasm for buying titles has grown. “Richie Rich,” for example, which did only $37 million at the box office, sold a respectable 3.2 million units.

The definition of “family” films is also changing. Earlier this year, Fox surprised the industry by releasing the marginal box-office hit “Waiting to Exhale,” an urban comedy, directly to sell-through. It sold 4.1 million units primarily by targeting women.

“Would that have been successful three years ago? Probably not,” said Paramount’s Kanne.

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Distributors estimate Paramount will ship about 10 million units of “Mission: Impossible.” In contrast, they predict “Independence Day” and “Toy Story” might each ship more than 20 million units.

But some are skeptical that all the titles will reach their lofty goals. Even boosters acknowledge that consumers will only spend so much on video.

“In an ideal world I would have hoped at least one of the major titles had been held in reserve for the first quarter,” said Joe Pagano, the video buyer for Best Buy. “There has to be some cannibalization.”

Industry sources also note that the huge estimates don’t take into account the low profit margins on the sell-through-priced titles and the number of cassettes returned to the studios.

“The only guys making money [on these sell-through titles] are the truck companies shipping all these units back and forth,” Vidmark Entertainment Senior Vice President Don Gold said.

All the studios share a hope that the blockbusters will help to enlarge the video market overall, especially for older catalog titles.

Duncan of Wherehouse hopes all the commercials and promotions for the big titles will help build awareness for video, which is facing challenges from direct broadcast satellite systems and video on demand.

The crowded sell-through season is “taking another step in making consumers excited about video and expanding their collection,” Duncan said. “It’s widening the horizon.”

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A Shifting Video Market

Movie studios have been exploiting a growing market for video sales. This fall, movie studios will be trying to sell a surprising number of blockbuster videos directly to consumers at prices ranging from $14 to $25. Just a few years ago, the studios generally chose the “sell-through” market only for successful children’s and family films. Other films, even blockbusters, were commonly sold to retailers at prices from $60 to $100 per video for the rental market. But rental revenues declined last year while the sell-through market more than doubled to $7 billion over the last five years. The growing market for sell-through is triggering the burst of video offerings available earlier and at cheaper prices.

TOP VIDEO SALES

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Video sale revenue Movie (millions) “Lion King” $427.4 “Snow White” 372.6 “Aladdin” 307.9 “Beauty and the Beast Disney” 277.6 “Jurassic Park” 274.8 “Pocahontas” 215.8 “Pinocchio”* 207.5 “Forrest Gump” 199.4 “Fantasia” 182.8 “Aristocats” 177.9

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THE FALL OFFERINGS

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Theatrical box office Movie (millions) “Independence Day” $283 “Twister” 239 “Toy Story” 192 “Mission: Impossible” 178 “Nutty Professor” 121 “James and the Giant Peach” 29 “Flipper” 20 “Adventures of Pinocchio” 13 “Land Before Time 4” **

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* Includes 500,000 units sold at $79.95 in 1985

** Direct to video

Source: Adams Media Research