Warner Home Video installs new rental model without distributors

According to an article in Video Business Magazine, Warner Home Video is taking big steps to change the face of its rental business. The studio will reportedly eliminate the middleman from rental product beginning in September. From that point, the supplier will handle all rental accounts directly through a subcontracting arrangement with Ingram Entertainment.

Under the new system, each retailer will be charged the same price, which could lead to lower costs for smaller retailers who had less leverage under the old system. Warner, however, will dictate the terms and decide to which accounts it will extend credit. The decision has huge financial implications for the already struggling distribution community, given Warner’s size. Half of Warner’s annual rental revenue, estimated between $130-$150 million by industry sources, was handled through wholesalers. The supplier accounted for an industry-leading 21.5% of rental revenue tracked by VidTrac last year.

The new model should ensure greater focus on Warner programs and product while also reducing costs. Warner’s frustration with the administration of its bonus programs and revenue-sharing programs is well-known. By eliminating the middlemen, the studio is cutting out such expenses as distributor mailers, rebates, sales rep incentives and the support of distributor events, which should ultimately help Warner to achieve better financial results in the rental business.

The change is the latest blow to traditional distribution, which is already reeling from the closure of two companies earlier this month. Although Warner had been considering such a change for some time–distributors began hearing the rumors in December–competitors believe the recent closures spurred it along. Warner and other studios found themselves with millions of dollars in unpaid bills when M.S. and Sight & Sound ceased operations.

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