Public domain prerecorded videotape biz disappoints

Discount Store News, Sept 30, 1985 by Larry Carlat

Public domain (PD) prerecorded videotapes, once touted as a panacea for ailing home video tape sales, appear to be a flash in the pan.

Indeed, the overall viability of public domain titles--movies and other properties, predominantly from the 30's and 40's, whose copyrights have expired--is open to question. Only children's cartoons and sports highlights are emerging a strong and steady performers, according to buyers interviewed.

Although price points have recently dropped from $14 to as low as $7, in part to help spur cooling consumer demand, many major chains are apprehensive about the category's future sales prospects.

K mart, Zayre, T.G. & Y., Bigg's, Heck's and Prange Way have all chosen a moderately safe merchandising path, opting for full-service rack-jobber programs, particularly Handle-man's "Vintage Video" series. Handleman provides its customers price protection and guaranteed returns of unsold products, although buyers admit they're sacrificing a couple of margin points they'd otherwise obtain buying directly from distributors.

Chains including Wal-Mart, Toys "R" Us, Caldor and CE specialist Crazy Eddie are using regional distributors. In some cases, they are obtaining special closeout deals, but all are playing tape inventories close to the vest, with many believing the category is just another fad that will burn out right after Christmas.

Predict Trouble

Other, more cynical merchants predict PD's rise and fall will, in many ways, parallel the home video game horror show.

"PD took off very fast; too fast. Now, it'll be a long, hard fall," said one executive at a specialty CE chain.

PD titles were hailed as the leading catalyst to propel home video cassette sales at the mass market level. An explosion of PD sales at discounters was supposed to illustrate that consumers are willing to buy prerecorded video at the right price, presumably below $20.

Price points have dropped a number of times this year--from the $20 opener to $15 and now, below $10--while PD in-store placement has shifted from front-end promotional displays to pegged endcaps or circular racks in most chain's CE departments.

Although initial consumer demand was strong, response has since cooled dramatically, according to several buyers.

"It was great in the beginning. It was a viable alternative to front-line tapes at an attractive price; but then everyone jumped on it. Price wars began; chains were taking large markdowns and suddenly, demand wasn't there," said John Branham, technical buyer for Bigg's, the hypermarket in Cincinnati.

"The big question buyers have to wrestle with now is 'How many times can someone watch a movie?' It's not like buying a record or cassette. That's why cartoons and sports tapes are pretty much the only two segments that are really moving. Kids can watch this stuff over and over. A movie is a one-shot deal," continued Branham.

Indeed, cartoons and sports highlights have been receiving big play at many discounters and are among the category's best sellers nationwide, even though title selection for these programs is comparatively limited.

"We've been stocking 400 pieces of PD per store, and although the older movies have slowed down a bit, cartoon classies of the 30's and 40's, 'Courageous Cat' and anything with the Three Stooges fly right out our doors," said a CE buyer from a Midwest discount chain.

Interestingly, many chains are experiencing an inordinate amount of PD returns, particularly old movies rather than children's programming. Parlaying their tape purchase into a "free rental," many consumers watch and possibly record the movie, returning it the next day, according to several chain buyers.

Other problems inherent in the category have been reports of poor quality (mainly because many of the films offered are over 50 years old), a small amount of pilferage and other basic recording snafus.

For example, Handleman, the nation's leading record and tape rack jobber, recently had to change sources for its PD "Vintage Video" program because many of the tapes were found to be recorded over prerecorded X-rated material.

Although PD sales have been sluggish at many chains lately, several buyers feel the category can rebound for Christmas; however, they are extremely wary of falling price points and narrowing margins.

"We weren't doing well with 'Vintage Video' at $15 a tape and apparently neither were a lot of other chains. Handleman recently cut its price and we're featuring the program at $9.94, but I don't know how long that price point will be effective," said Howard Holshouser, CE buyer for Heck's.

Handleman dropped its wholesale price from around $8 to $6.50 per tape although the margin structure remained the same, with most mass merchants making about 35%. Chains buying direct from regional distributors can make an additional 10% in margin depending on the competitiveness of each individual market, but it's usually a one-way deal with no return privileges.

Although Handleman's price drop was significant, Holshouser noted it came too late for the chain to feature it in its Christmas advertising and he is now unsure of PD's future.