Selling home movies

When Michigan entrepreneur Andre Blay dispatched “cold call” letters to the major studios in 1977, he didn’t realize he was setting the home video revolution in motion. He was just asking for permission to transfer big-screen movies to videotape for sale to American consumers.

Fearful of piracy, none of the recipients agreed -- except 20th Century Fox. Just prior to the release of “Star Wars,” the studio was coming off a lackluster stretch and exploring new technologies. In return for a $300,000 advance and a $7.50 royalty on each title sold, it licensed 50 of its most popular films released in 1973 or earlier (to protect the value of newer films), including “Patton,” “Hello, Dolly!” and “The French Connection.”

That was enough for Blay to demonstrate consumer demand, however, and gain a toehold in the market. Thirteen thousand people responded to an ad he placed in TV Guide to join his Video Club of America. For a one-time fee of $10, subscribers could buy a movie for $49.95. Forty percent of them didn’t even own a VCR, Blay recalls, then priced at around $1,000. The club was the direct mail component of a broader marketing plan. Blay distributed his product at electronics stores such as Harvey’s and Crazy Eddie’s. He also set up manufacturers’ tie-ins in which companies such as RCA or Zenith gave a movie cassette to every VCR buyer.

No video duplicators had sufficient production capacity at the time, so Blay set up an operation of his own. By the end of the first year, he was turning out 30,000 units -- but the studios were moving in. By late 1978, his market share was down to 50% -- a slice he maintained by cutting deals with independent film companies. The following year Fox bought him out for $7.5 million, and Blay stayed on as president for three years before starting another company.

Now valued at more than $25 billion annually, VHS and DVD spending is responsible for more than twice the retail revenue of domestic theatrical box office. Videocassettes, however, have taken a dive. Eight years ago, when DVDs were introduced, cassettes accounted for nearly $16 billion in rentals and sales, a figure that dropped to $3.6 billion last year. In 2005, videocassettes are expected to amount to only 7% of home video revenues, according to Carmel-based Adams Media Research.

“DVDs took over even faster than CDs -- I knew instantly they were the death knell,” said Blay, 67, who now heads his own software production company, Mackinac Media. “They’ve always been a better technology than tape -- better picture, better sound, more durable. They’re also cheaper and more compact than tape, which made everyone a ‘collector.’ ”

Finding a newer niche

Rather than bemoaning the death of his baby, Blay threw his hat into the DVD ring, switching his business model in the process. Independent distributors can still acquire major motion pictures, he explains, but the competition is very intense. (“It’s like getting Steven Spielberg to direct your next motion picture.”) As a result, he’s changed course from acquisitions to developing original material.

The challenge is finding niche product with sufficient appeal -- and getting it broadly distributed. In 2004, Blay produced a four-hour documentary on the Three Stooges and a 10-hour retrospective on comedic legend Roscoe (Fatty) Arbuckle, both released this spring. Next up: a historical look at another silent screen figure, Buster Keaton, due out in October -- composed mostly of material that was in the public domain. Blay is also working on a documentary on the “superfight” between Rocky Marciano and Muhammad Ali.

“I wish I’d started five years ago, when DVDs were in their infancy,” he said. “With 400 titles released each month, it’s much harder to secure the necessary shelf space. Still, specialty stores and Web-based advertising make it possible to target to specific audiences. I have access to a database of 2 million people who regularly buy soccer equipment -- perfect for one of our first releases, a three-hour DVD of World Cup highlights entitled ‘FIFA Fever.’ ”

The latent desire to collect, Blay says, has always been his focus. That videocassettes became a rental business was an unforeseen turn. Priced as high as $90, they didn’t lend themselves to collecting, he said. And unlike television, or radio before it, which developed the sitcom and other programming, videocassettes as a delivery system never inspired the creation of programming specific to the medium that creates value for the consumer.

“DVDs -- with the addition of the ‘extras’ -- come closest to that,” he said. “Even if someone has seen a movie 10 times, he wants to go behind the scenes. The ‘chapter’ features are also a draw because people can cut to the chase and watch just what interests them.”

In the early 1980s, Blay spent $3 million to create original sports programming, bringing ski expert Warren Miller and Olympics cinematographer Bud Greenspan on board. That idea never panned out. Rental stores such as Blockbuster and Hollywood Video were the sole outlets for the tapes, he explained, and his material was intended for individual sale. Not until the early 1990s did Wal-Mart -- and studios such as Paramount and Disney -- help create the necessary “sell-through” market, lowering the price on titles such as Paramount’s “Indiana Jones and the Temple of Doom.” And not until DVDs came out did outlets such as Best Buy and Target begin to carry prerecorded video product in bulk.

“It’s easier to get in the market these days,” said Blay. “Alternate programming is everywhere -- look at the proliferation of niche cable channels such as Animal Planet and the Discovery Network. The economics also work in your favor. In the old days, you spent $100,000 to produce original programming and sold 1,000 copies. Today you spend that much and sell 50,000 -- the mind-set has changed from ‘rental’ to ‘buy.’ ”

DVDs still ride the crest

Declining hardware prices also help. With DVD players down to $49 or less, Blay said, they’re in more than 70 million American households. Though the growth rates are unlikely to keep pace with those of years past, he concedes, DVDs are alive and well. The impending release of high-definition DVDs, he says, is comparable to the improvement of stereo over high-fidelity mono sound. And even current-generation DVDs will look better on high-definition TV sets, whose numbers are on the rise.

“The naysayers say the DVD boom is past,” Blay adds, referring to panelists at last week’s Home Media Retailing DVD summit in Los Angeles. “They say the market is getting saturated, that the low-hanging fruit has been picked. Still, there are no alternate products and delivery systems on the horizon. What’s going to replace DVDs -- holograms?

It’s a different world from the one Blay entered, an era when Universal Studios sued Sony for copyright infringement merely for selling its Betamax VCR.

“Theatrical revenues have stayed steady while a new $25-billion industry has fallen on the studios’ doorstep -- even more if the global figures are factored in,” Blay said. “Home video has become a lifestyle, just like going to movies on Friday night ... though I can’t say I visualized it at the time.”