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Video shops complain
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June 8, 2000: 12:30 p.m. ET
Independent video rental shops charge chains are putting them out of business
By Staff Writer Hope Hamashige
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NEW YORK (CNNfn) - A sign on the door of the Video To Go, a small Manhattan video store, announced last weekend the shop had gone out of business, and asked customers to take their business to Books, Videos and More, an independent video store about a block away. Customers peering through the windows seemed stunned that all that remained of the once cluttered Upper West Side video shop was a few stray cassettes littering the floor.
Michael Mueller wasn't much surprised, however. Mueller is the owner of Books, Videos and More and has seen several independent video retailers close suddenly, much like Video To Go did last week, over the past several years.
Only two independents remain in this busy Manhattan neighborhood, as far as Mueller can tell. The other is Kahn Video, owned by Kamal Kahn, about 20 blocks to the north.
"There used to be at least four video stores within a 10-block radius of mine," said Kahn. Today, Sunset Video, the Video Vault and Boomers Video are all gone. Both Kahn and Mueller point out that while the mom and pop video stores area all but extinct in this neighborhood, two Blockbuster stores remain.
The disappearance of independent video stores is not confined to this slice of Manhattan. Across the U.S. in urban, rural and suburban areas, mom and pop video stores are closing their doors. According to the National Association of Video Distributors, nearly 1,400 independents folded in 1999 and another 285 went out of business in the first quarter of 2000.
Many small video outlets blame their current misfortune on the spread of national video retailers, like Blockbuster (BBI: Research, Estimates). Several local chapters of the Video Software Dealers Association -- including the Wisconsin, Montana, Upstate New York, New York/New Jersey, Northern California, Rocky Mountain, Washington and Delaware chapters -- have asked the Federal Trade Commission to investigate possible illegal business deals between the motion picture studios and large video store chains.
The VSDA, whose members include chain stores as well as independent video shops, has not taken a side in the debate.
Revenue sharing at center of dispute
At issue are revenue sharing agreements that Blockbuster negotiated with the major movie studios in 1997. The chain pays less per tape than do independents and agreed to share rental revenue with the studios. Under such agreements, the studios also agreed to supply many copies of popular new releases.
Blockbuster, which now controls about 32 percent of the domestic video rental market, said the revenue sharing agreements are not anti-competitive because they are open to any retailer who wants to participate.
"Everything we have done has been both pro-consumer and pro-competitive," said Randy Hargrove, a Blockbuster spokesman. "Nothing we have done with revenue sharing has been exclusive. That is open to everyone."
But Rod Eglash, president of VSDA's Wisconsin chapter, said striking a revenue sharing agreement with a major studio is not that simple. Because there are so many independents, studios don't want to negotiate with each individually and work instead with distributors.
Under that arrangement, Eglash said the independents don't receive comparable prices and never get as many of the new releases as Blockbuster.
"A local Blockbuster may get 200 copies of a new release and we may only have six. And, although we don't know what they are paying, we suspect we are paying a lot more," Eglash said. "We don't mind paying more. We mind paying a lot more."
The FTC has not determined whether it will launch a full investigation of Blockbuster's revenue sharing agreements.
Adding to the independents' woes, though not part of the complaint to the FTC, is the proliferation of satellite television service. Many independents were further discouraged about their prospects for survival when Blockbuster announced recently it is teaming up with DirecTV. It will sell DirecTV subscriptions and co-brand pay-per-view service.
May be too little too late
 Blockbuster is beyond formidable, Mueller said. It is a struggle at best to compete directly against it. He has taken a different tack to remain in business. Rather than lure customers with new releases and popular films, he stocks hard-to-find titles and out-of-print films that attract a loyal following of movie buffs. He also has pooled resources with two similar shops, both across Central Park on the Upper East Side. Among the three of them, they carry 15,000 titles, but not all are immediately accessible. If a particular film is not in his shop but across the way, he will order it for next day delivery.
Kahn, too, has been trying to boost his business. Like many independent video stores, Kahn has expanded his business beyond video to include cell phones and beepers in an effort to keep his revenue steady. "It's helping a bit, but we are still really struggling," Kahn said. Eglash, too, began selling music and video games, magazines, and Pokemon in a vain attempt to improve the bottom line. Even with the new products, he and his wife took a 25 percent reduction in pay in 1999 just to keep from going under.
If the independents go away, they warn, consumers will pay a price. Literally. If the chains control a market, the independents charge, customers will quickly see the price of rentals rise. They also will pay in less obvious ways, say the independents. There will be less selection and the stores will be less responsive to customers' requests.
The independents also pride themselves on being more knowledgeable than their brand name competitors about films and enjoy sharing that knowledge with their customers. Eglash, for one, has asked independents, in articles he has written for industry magazines, to tout their unique nature in their neighborhood to try to build customer loyalty.
Even if the FTC decides to move forward, it may come too late. Eglash recognized that an FTC investigation, if the agency decides to take up the case, will take months or years and may amount to nothing. And even though his little store in Milwaukee is not exactly thriving, he said he isn't willing to give up without a fight. 
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