Small Video Shops Surviving Behind the Green Door

Ever since Video Hut opened for business 15 years ago in Los Feliz, the video rental store has been known for its wide, and eclectic, selection of movies.

More than 28,000 videos are packed into the 6,000-square-foot store, ranging from the latest mainstream hits to classic, foreign, art-house and cult fare.

But hidden behind a large green door at the back of the store is a smaller room filled with about 5,000 adult videos. These generate between 25% and 40% of Video Hut’s total rental revenue, said owner Adam Naldzhyan, and help the store compete against the nearby Blockbuster Video outlet, which does not carry adult products.

“We keep our foreign and classic films right outside the green door, just as another precaution to keep kids away, because kids don’t really rent foreign or classic films,” said Naldzhyan, whose family bought the store five years ago. “We are still mainly a family video store, and most of our business comes from renting movies.

“This just gives us a chance to get everything that comes out on video--and that helps you against Blockbuster.”

All over the country, independent video store owners, faced with mounting competition from big public chains such as Blockbuster and Hollywood Entertainment, are holding their own by carrying adult videos, which the big chains don’t stock and which always have been highly profitable because of their low purchase price.

And now that Blockbuster and the other major players are aggressively seeking to expand their market share by boosting their inventories of new releases and guaranteeing the availability of hit titles, independent retailers are depending even more on adult videos.

At a recent forum for candidates running for the Video Software Dealers Assn.’s board of directors, eight of the nine retailer candidates said they not only carry adult videos, but that they also account for an increasing share of their rental revenue and, in the words of one, “100% of my profit.”

John Merchant, who owns four 49er Video stores in Sacramento, said adult video rentals account for between 12% and 20% of total revenue, up from 6% to 8% two years ago.

“Being the only independent video store left, the only alternative for customers is to go to a regular adult video store, and a lot of people don’t want to [do that],” Merchant said. “And as things have become more competitive and we’re losing more and more of our new-release business, we’re really focusing more on adult.

“We’ve always carried it, but we never marketed it. We just kept it in a back room and people just found it and rented it. Now, we are much more attuned to new releases, rotating product so we have a fresh selection of movies.”

Merchant said he isn’t exactly happy with the shift, but it’s a matter of necessity.

“It’s part of our overall survival strategy,” he said. “Blockbuster and Hollywood are now carrying eight to 10 times as many copies of new releases as we are, and backing it up with millions of dollars in advertising.

“So, consequently, anyone who is in a competitive market, like Sacramento, isn’t doing nearly the revenue they once were. We need to look at other revenue streams to keep us viable, and adult is one of them.”

Yet, overall, sales and rentals of adult video products are flattening out, said Paul Fishbein, publisher of Adult Video News. According to the magazine’s most recent annual survey, conducted last summer, consumers in 1997 spent $4.1 billion on adult videos, down from $4.2 billion the year before. (The overall domestic video market is about $18 billion, analysts estimate.)

“It’s the first down-tick we’ve seen since we began doing surveys eight years ago,” said Fishbein, whose publication is sponsoring the Adult Entertainment Expo in conjunction with the 18th annual Video Software Dealers Assn. Convention at the Los Angeles Convention Center July 8-10.

But Fishbein notes that of the 25,000 retail stores around the country that carry adult videos, the majority--about 20,000--are mainstream video stores.

“Most independent video stores carry adult product,” Fishbein said. “It’s the only thing that allows them to compete with the big chains. The way monsters like Blockbuster and Hollywood dominate the market, the small store has to offer something consumers can’t get there, and in most cases they rely on adult product.

“You’ve got lots of little stores that specialize in foreign films or classics, but it’s really adult that’s keeping them alive.”

With the growing dependency of independent stores on adult videos comes a growing need to stay aware of local obscenity laws, retailers say. The thing to avoid, they say, is devoting so much floor space to adult products that you’re classified as an adult business.

Merchant says in Sacramento and most other California cities, retailers really don’t have to worry unless they devote more than 25% of their total floor space to adult products.

“Being in California, I think we enjoy a little bit more flexibility than retailers in, say, the Southeast, Tennessee and Kentucky,” he said.

“A lot of the rules are governed on a county-by-county basis and controlled through business license applications, but in general, if you maintain a low profile in terms of signage and the amount of space you dedicate to adult product, it’s relatively easy to stay within those guidelines.

“But if you take 50% of your store and start supporting that with signage to where you are basically an adult store, using mainstream theatrical releases as a shield, you might run into some problems.”

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Thomas K. Arnold is editor in chief of Video Store Magazine, a weekly trade publication serving the home-video industry.