Fox differentiates sales, rental DVDs by added-value

Slumdog Millionaire, Marley & Me first titles under new strategy

By Susanne Ault -- Video Business, 3/5/2009

MARCH 5 | 20th Century Fox Home Entertainment, in an effort to invigorate slack DVD sales, is creating two classes of discs: premium versions with added-value material such as digital copy for the sell-through market and stripped-down offerings for rental.

Starting with March 31 releases Marley & Me and Best Picture Oscar winner Slumdog Millionaire, wholesalers will be “authorized to sell rental accounts only the rental SKUs and to sell retail accounts only the retail SKUs,” according to a letter sent to accounts by Fox senior VP of sales Don Jeffries and obtained by VB. Fox will impose the same restrictions on direct accounts, according to the letter.

The rental DVD of Slumdog, for instance, carries only the movie and trailers, but the retail DVD also has special features including deleted scenes and commentaries. The rental Blu-ray Disc does have the bonus features, but the retail Blu-ray adds digital copy.

There are variations by title, however. Marley & Me, for example, has special features on both the retail and rental DVDs. The Marley Blu-ray also carries bonus features, but the retail Blu-ray is a combo pack with a DVD movie and digital copy.

Other titles being released under the new strategy are The Day the Earth Stood Still, due in stores April 7 (prebook March 11); The Wrestler and Notorious on April 21 (prebook March 25); and Bride Wars, April 28 (prebook April 1).

Fox confirmed the strategy in a statement but did not provide details.

“We have developed product variations to feed different consumer consumption models and behaviors,” the statement said. “For rental customers, we’re delivering a theatrical experience in the home while promoting upcoming releases; for retail [or sell-through] customers, we’re offering a premium product that expands the entertainment experience of that particular property to further enhance ownership.”

Fox will allow rental retailers to purchase retail copies for sale, but only in amounts that are consistent with the account’s sales history on similar titles.

The previously-viewed DVDs often sold by rental retailers would presumably be the bare bones versions, creating a value distinction between new and used product.

Fox’s ability to enforce its terms is limited, however, by the First Sale Doctrine, which gives retailers the right to rent any legally purchased copies.

Distributors and retailers contacted by VB said they understand Fox’s desire to add value to retail product and drive consumer sales, particularly given the current economic challenges and DVD’s falling sales industrywide, but many are not happy with the move.

Wholesalers lamented that they can’t prevent retailers from buying a premium sell-through version of Slumdog elsewhere, for example at Wal-Mart, and turning around and renting it to their customers.

“Distribution is now in the position of being the cop, and I don’t like being in that position,” said one wholesaler source. “Distribution is mad as hell. The video store owners aren't supposed to buy [sell-through] versions from us, but they’ll go buy it elsewhere.”

Some stores, such as Seattle’s Scarecrow Video, are already planning to creatively get around Fox's rules.

The store will bring in 30 rental DVD copies of Slumdog from its distributor and go to another store to buy at least one of the bonus-filled sell-through DVD versions, which it will keep on the shelf for rental long after it sells off as used most of the designated rental copies. The outlet plans to do the same thing for Wrestler.

Mainly, Scarecrow is worried about annoying customers, who might wrongly assume they’ll get bonus features with the rental Slumdog and Wrestler standard DVDs.

“Can you imagine explaining this to all of your customers?” Scarecrow buyer Mark Steiner asked. “People will think when they rent, it should have everything on it. And why shouldn’t it? This is just silly, and consumers aren’t going to be happy.”

Most of the Video Buyers Group’s 1,800 indie rentailers will likely follow Fox's rules, VBG president Ted Engen said.

“We understand the plight of studios trying to add value to the sell-through side,” Engen said. “And I’m under the impression we’ll be able to get all the sell-through and the rental copies we’ll need.”

Yet, it will be impossible to completely stem the flow of retail copies to rental, Engen acknowledged.

“There’s no question that some rentailers will go and buy from Wal-Mart and rent out the copies, and you can’t stop that,” added Engen. “But it’s not going to be that big of an issue as people think. The main thing is that studios have to add value to get customers to buy, and they aren’t buying. Numbers have been falling through the floor.”