The home video industry-wide move to revenue-sharing is taking its toll on leading video wholesalers, such as Ingram and Image Entertainment. Overall, revenues have been dramatically reduced by studios’ selling direct to the major home video chains under the revenue-sharing umbrella. With a large base of independent home video retailers being forced to close their doors due to an inability to compete with the large rental chains, distributors are finding it increasingly hard to maintain their business at previous levels and are reducing overhead expenses, particularly those associated with the rental part of the business, in an attempt to stay profitable.

For independent retailers, revenue-sharing has been one of the ways that have helped them stay competitive, but with studios increasingly selling direct to the major chains, the competitive environment is becoming much more difficult.

Even sell-through DVD product is now being sold direct by some studios to major Internet e-commerce accounts, bypassing the traditional video distributor. And with LaserDisc all but extinct, Image Entertainment and Pioneer Entertainment could be seriously impacted if the studios completely bypassed them to sell DVD direct to all the major chains and Internet e-commerce concerns. Already, Pioneer has announced that it has discontinued its LaserDisc business. The result, in such a competitive environment, will be to increase DVD discounting. Online retailers with lower overhead and more aggressive business models will certainly continue to price their DVD sell-through competitively to drive revenue and to show their IPO shareholders that they can achieve scalable growth to drive stock prices and investor momentum. Already Amazon.com, Big Star Entertainment, DVD Express and Reel.com are pricing aggressively to drive multiple DVD sales.

Mass market brick and mortar chains such as Wal-Mart, Kmart and Target are readying their launch of DVD in their stores and that is certain to mean aggressive pricing on hit titles. The combined effect will be to drive DVD awareness and hardware penetration. With Divx gone, power retailer Circuit City will redirect its focus on DVD to compete for marketshare with Best Buy, Musicland, Tower and other record chains.

All combined, the impact on the consumer will be lower prices on DVD, assuming studios will not shift from the present low-cost sell-through model to a rental model.