The studios are exploring the best ways to gain shelf space in traditional and alternative channels. Paramount is selling their name-branded Star Trek and Power Rangers titles through their traditional distribution channels (video stores) and through the software channels, using their internal sales force. Disney, a brand in itself, has placed The Lion King CD-ROM in the software channel and mass merchants using an outside rep firm. WEA (Warner, Elektra & Atlantic) is using its inside sales force to sell into music outlets, and training a separate inside sales group to penetrate the software and computer channels.
Over time, Time Warner Interactive has used Apple's distribution, a national rep firm and now their own sales force to place product with music stores as well as software retailers, explains Jessee Allread, President of Dx3. "Name-branded stuff gets on the shelf," he said. Ultimately the studios will settle on the sales strategies which are most effective in terms of cost and control. This will ultimately include music stores, bookstores, consumer electronic stores, department stores, toy stores, mass merchants, software stores, computer superstores, and video stores (for rental as well as sell-through).
Hollywood understands the consumer, the channel and the power of name branding and merchandising, far better than Silicon Valley (the center of technology) or New York (the other center of content). Hollywood can create consumer demand, and then cater to it.
The studios respect the channels and their position of power with the consumer. When The Lion King CD failed to run on CD-ROM players with old 8-bit sound cards or on new hardware which used old video chip sets, Disney rushed to reassure the channel and the family buyer with replacement product and hotlines for support. Return rates in the press are greatly overstated, and the behind-the-scenes story is one of a studio responding to the needs of the store and the customer in a way that promises Hollywood's success in this turbulent marketplace. The studios' advantage of creating branding and awareness combined with savvy consumer marketing will be even more valuable in a couple of years when the business is more established and more stable. The studios are beginning their market entry now, because the learning curve takes at least a year, and relationships with buyers in new distribution channels must be created. All this takes time.
Software once could not be returned if the shrink wrap was opened, and was sold into the channel at a discount off of suggested retail price (SRP). CD-ROM titles, no longer following this software distribution model, can now be returned for any reason and are sold on a net pricing structure like toys or other consumer products (see "Mass Market Pricing," Vol. 4, No. 10, p.26). The buyers from the entertainment industries that are converging to become multimedia (music, books and video) understand net pricing.
So the Hollywood studios are taking their risks early and learning to adapt to this emerging marketplace full of small business pioneers. "In an emerging industry, big is not necessarily better," said Diane Golden, a partner at Mitchell, Silberberg & Knupp. "The studios can gain a competitive edge by adopting an entrepreneurial approach to entering new media production and distribution through the acquisition of, or strategic alliances with, established boutique publishers."
The Hollywood studios will wait
for the mass market to be clearly established, and they will enter the CD-ROM
market in force once the business model more closely approximates their own
business, the business of entertainment products. Given the clear movement of
the market towards the entertainment industry model with easy returns, net pricing,
brand naming, multiple distribution channels and aggressive marketing, the studios
won't have much longer to wait.
Joey
Tamer refines the vision, strategy and success of companies --
Fortune 1000, capitalized start-ups and investment fund.
www.joeytamer.com
(310) 245 5310 joey @ joeytamer.com