DVD releases extend the shelf life of movie merch

It used to be that when you dropped a few hundred million on a picture, it bought you more than 15 minutes of fame. Not anymore. With dozens of kid-themed blockbusters in theaters every year, a release barely has time to catch its breath these days, let alone move warehouses full of product.
June 1, 2004

It used to be that when you dropped a few hundred million on a picture, it bought you more than 15 minutes of fame. Not anymore. With dozens of kid-themed blockbusters in theaters every year, a release barely has time to catch its breath these days, let alone move warehouses full of product.

Back in the good old days of E.T. and the like, shelf space could be measured in months, if not years. Big theatrical releases backed by lots of marketing moolah and merch were a ticket to pop-culture nirvana. But shorter theatrical runs, piracy and shrinking consumer attention spans mean properties now leap from big-screen to disk in less than half a year.

At the same time, the DVD market is booming. According to industry association The Digital Entertainment Group, consumer spending on DVDs grew by 18% in 2003, adding up to US$11.6 billion in retail sales. And studios are paying attention.

DVDs have become an important part of the holistic brand-building approach that forms the bedrock of a successful property, and that means licensors need to be thinking DVD-and-beyond a year or more before a flick has even hit the big screen. ‘To really maximize a property,’ says Vince Klaseus, VP and GM of worldwide film franchise marketing for Disney Consumer Products, ‘you have to build a full licensing program around the property from birth (at theatrical release) into the DVD release, and then potentially longer if it’s a franchise.’

And with the cost of marketing being what it is – the Motion Picture Association of America estimates that studios spend US$39 million on average marketing each film – it only makes sense to have the theatrical release passing heat to the DVD, with both fanning the flames of a comprehensive merch program.

That’s all well and good, but what do you do when your retail partner is afraid of long-term commitment?

Retail: Where the plastic meets the plush

About a decade ago, something untoward happened at retail. A handful of those big-budget studio films with lots of marketing bucks and reams of product underpinning flopped, leaving retailers holding the bag. Then mid-tier and specialty channels started to dry up in favor of big-box chains with smaller margins and no spare change to gamble on virgin properties. Enter the risk-averse retail climate.

A major home entertainment launch – à la Spider-Man, Finding Nemo or Lord of the Rings – helps alleviate some of that risk. Big tent-pole DVD releases that promise to spur mass consumption of product are the closest thing retailers now get to the guaranteed hits of yore, and that’s opening some doors.

‘If you were talking to retailers five years ago,’ says New Line Cinema’s senior executive VP of worldwide licensing, David Imhoff, ‘DVD releases weren’t even getting onto the table for consideration. Now retailers are considering major DVD releases as something to support with merchandise. That’s not to say they’re on an even footing with a brand-new, triple-A theatrical release or a classic release, but when retailers are deciding what handful of properties they’re going to back, they are now thinking about DVD releases.’

Over at DreamWorks, head of consumer products Brad Globe offers a big green example: ‘On Shrek, for instance, [we sold] 20 million DVDs and videos. Those are now in the home, and as we know, kids watch DVDs over and over… I think retailers are seeing the potential of supporting that DVD with product. We didn’t have a really receptive retail ear for quite a while – up until the last year or so. Now we are starting to have those conversations.’

Globe says plans are in the works for a more selective merchandising program to support Shrek 2′s DVD release in Q4. The theatrical consumer products launch is in full swing right now, with more than 90 licensees currently on the roster. Globe says that if the movie merch sells well this time around, DreamWorks may roll out a line of interactive and toy SKUs tied to the DVD. ‘There’s not a great margin for retailers on video,’ he says. ‘It’s more of a loss-leader. So frankly, the only way they can make some money, besides just driving traffic, is to sell property-related merchandise… Retailers are not huge risk-takers.’

Risk can certainly be mitigated, but it can’t be entirely eliminated. For every merch campaign gone right, there’s one gone wrong. But what’s helping retailers look beyond the risk is increased interest from third-party players to support programs with marketing money.

Whether they are returning after participating in the theatrical release or they saw a US$100-million opening weekend and want a piece of the DVD action, promotional partnerships are much easier to forge now than ever before, and more marketing bucks behind a home entertainment release means more steam for a merch program at retail. On Spider-Man, for example, every promotional partner save one QSR (which was otherwise committed) came back for the DVD release. And New Line’s Imhoff ballparks that media and promotional dollars from third-party partners for the Lord of the Rings DVDs even surpassed the buy-in for the theatrical releases.

For some of its upcoming licensed video games, including Shrek 2, Spider-Man 2 and SpongeBob SquarePants: The Movie, THQ is entertaining more offers for consumer products tie-ins and cross-promotions with packaged goods players. Says Tiffany Ternan, senior VP of North American sales and operations, ‘The first product this company ever did was Home Alone, and as a licensee, it wasn’t easy to coordinate a cross-promotion. I think everyone was focusing on their own segments of the business. [But now], studios are seeing a lot more licensee synergy. It creates a much bigger in-store footprint if they can get licensees working together and doing some sort of end-cap or pallet program that ups the level of awareness.’

Shelf space: The final frontier

So, does all this optimism translate into more space at retail? Well, it depends…

Most big-box stores will only allocate space to two or three movie properties at any given time. From there, they’ll tinker with the mix according to the relative success of each property.

But down the block from the Wal-Marts of the world, DVDs might just be causing a stir. With DVD sales for some properties hitting the US$20-million mark, some industry folk are finding that their product is graduating to better in-store real estate. Travis Rutherford, senior VP of MGM Consumer Products, has also seen increased interest for support product coming from music and electronics retailers such as Best Buy, Circuit City and Blockbuster, including initiatives such as self-contained fixtures around the DVD release. ‘I think Blockbuster has been very successful in doing this,’ notes Rutherford, ‘as has Tower Records – creating the shop-in-shop concept where you have a four-foot section of product around the key timing of a DVD release.’

L.A.-based plush manufacturer Applause maintains compact retail spaces (18 square inches) in each of Blockbuster’s 4,000 outlets. President Bob Solomon says his company does brisk business, selling several million dollars worth of movie- and character-based impulse-buy items in the US$3 to US$15 price range each year.

Rutherford adds that if you package DVD efforts with core toy and publishing products, you can go into non-traditional distribution outlets such as grocery, drug and club channels. He says such venues are beginning to have increasing appeal to MGM, especially when there’s a DVD to ‘directly support those initiatives at the store level, whether it be end caps or self-contained fixtures, leveraging the appropriate assortment that ties into the release.’

Time waits for no home entertainment release

The one thing DVD has not been able to change is the seasonal nature of the home entertainment market, which still determines price point. Spring properties have to be cheaper than those unleashed in Q4 because the retail market is not as hot at that time. Notes Rutherford, ‘I’m a big believer that great product will find its way to the marketplace, but I think we have to be sensitive about seasonality. It is probably not a smart thing to think about those really high-ticket items outside of the traditional holiday season.

‘It comes down to looking at every opportunity on a case-by-case basis – defining your go-to-market strategy, finding out which retailers in that assortment have the same objectives, and then having the right product at the right price at the right time. It sounds simple, but if we could manage our business in those simple terms, we’d all be superheroes… I’d be retired and living in the south of France.’

But many have already hit on that perfect alchemy that turns PVC, plastic and plush into gold. For the last two years, for example, The Lord of the Rings franchise has rolled out its DVDs in August and November, with accompanying consumer products. Thus far, the movie- and DVD-related merch has racked up US$750 million at retail, and New Line is sticking to the strategy. Tying in with the May DVD release of The Lord of the Rings: Return of the King, a new line of Play Along’s LOTR Minimates, 50 all-new action figures from Toy Biz and Hasbro’s LOTR Stratego board game (LOTR games racked up more than a million unit sales in 2003) hit retail at the same time.

A properly timed DVD release can also serve as a second kick at the can for properties that didn’t find their audience in theaters. With so many titles hitting screens at once, it’s inevitable that some will slip past theater-goers, and with little heat generated at box office, associated merch programs either won’t move or are never created. While such properties are not likely to ever explode at mass, they can be successful in other distribution streams, thanks very much.

Jennifer Robinson, VP of domestic sales and worldwide publishing at Twentieth Century Fox Licensing & Merchandising, points to Office Space as an example of how a DVD release can rekindle merch efforts. Although the 1999 Mike Judge flick only grossed US$10.8 million at the box office, it has enjoyed cult success on DVD (moving more than 2.6 million units since it was released in 2001), and that has allowed Fox L&M to roll out a small teen-targeted merch program featuring apparel and accessories at Hot Topic.

But Matt Peterson, director of entertainment marketing at Mattel, cautions that licensors need to take a hard look at movie properties that didn’t initially succeed at retail. ‘If it doesn’t work the first time around, the consumers have kind of spoken. Obviously, you don’t want to beat the proverbial dead horse.’

It’s a fine line. Play too conservative with a property that becomes a hit and you have inventory issues, especially when so much manufacturing is done at least 12 months out in Asia. But being over-confident with a property that doesn’t connect can leave you with warehouses full of gewgaws collecting dust. Although it’s an amorphous concept, DreamWorks’ Globe ballparks the right amount of SKUs to support one of its DVD releases at about 100.

But can we make the ogre purple, baby?

At the end of the day, perhaps the biggest impact DVDs have had on the kids entertainment industry is by starting a dialogue between content creators and retailers. With time running tight and so many properties to choose from, it behooves studios to keep retailers informed about their efforts and get their input on support programs.

Back in early 2003, when much of Spider-Man 2 was still just a glimmer in an animator’s eye, Spider-Man Merchandising’s Al Ovadia toured 60 retailers in eight countries to show footage and preach the gospel of Spidey licensing – and the response was favorable. Says Ovadia, ‘Virtually every retailer I met with will be doing some sort of promotional activity around this picture, compared to virtually no international support the first time.’

Retailers really do want to be involved. They want something unique for the DVD release that will distinguish them from their competitors: exclusivity, customization, unique packaging, etc. While the studios acknowledge that selling exclusively through any one retailer, regardless of how big it might be, probably won’t generate enough sales and hype to hit the numbers they want, look for more dialogue to occur along these lines. As Globe notes, ‘We have to try to give the retailer what they need and what they want. And if they don’t want what we have to sell, we either adapt or we don’t have a business.’

Readings from ’101 Uses for Your DVD Release’

Use #21: Create your very own brand pandemonium Mattel has learned that the best way to make money at retail is by creating original branded content that can support merch programs. The company began developing DVDs for proprietary brands Barbie and Hot Wheels about five years ago, and director of entertainment marketing Matt Peterson notes that these help Mattel’s sales force close deals with retailers because it allows Mattel to cross categories and appeal on a wider front.

Peterson says Mattel initially viewed the DVDs as ‘nice little’ ads for the brands, but big sales have enabled the toyco to create large retail programs around the subsequent releases. Mattel’s North American kidvid distributor Lion’s Gate Family Home Entertainment estimates that combined DVD/VHS unit sales from the first three Barbie releases – Barbie in the Nutcracker, Barbie as Rapunzel and Barbie of Swan Lake – have cracked the 10-million mark since the first one rolled out in 2001. A fourth movie, Barbie as Princess and the Pauper, is set to debut in September and will be accompanied by a full toy line at mass retail.

If you want an even clearer example of how content can be used to create buzz, look no further than the House of Mouse. Disney Consumer Products developed its Disney Princess Brand – a collection of famous female characters including Ariel, Belle, Cinderella and Pocahontas – in 2000 and has since used them in its DVD, television and theme park businesses to create a content package that has retailers lining up in the aisles.
Outlets involved in the merch effort include Payless, Home Depot, Federated Department Stores and Circuit City, carrying what Disney estimates to be 25,000 merchandise SKUs from 300 global licensees. Disney reports that returns on the Princess Brand have grown from US$300 million in 2000 to US$1.3 billion in 2003, with 2004 sales projections hovering around US$2 billion.

Vince Klaseus, VP and GM of film franchise marketing worldwide for Disney Consumer Products, says (in the understatement of the new millennium): ‘It’s not only generating some significant revenue in terms of the video and DVD sales, but it really is a nice shot in the arm in terms of awareness and support for the overall franchise.’

Use #47: Using DVD to push TV-related product

With a TV programming library that just keeps growing, it’s not surprising that Fox has found success with DVD and merch for its small-screen properties at retail. On titles such as Buffy the Vampire Slayer, which has multiple seasons in the can, Fox can do several DVD releases a year to keep constant shelf space open at retail.

But the best example of a TV property that’s made good is Family Guy. The 60-ep animated series created by Seth McFarlane may have never found its footing on Fox, but now that it has begun to play in Cartoon Network’s Adult Swim block and is available on DVD, the show has become a hit – selling upwards of two million DVD sets since it was released in April 2003. The supporting licensing program, which kicked off exclusively at Hot Topic earlier this year, now encompasses more than 20 domestic licensing partners, including Ripple Junction (apparel), Changes (apparel, candles, snow globes and floormats) and Rix (novelty products like coasters, playing cards, waste baskets and darts).

Use #83: Fine-tune your pricing strategy

Video game developer THQ uses DVD releases to double-check the effectiveness of its pricing at retail. Tiffany Ternan, senior VP of North American sales and operations for the gameco, explains. ‘If we release at full price for the theatrical release and the DVD is coming out six months later, we want to make sure that we’re at a better price point then so that we can get second kick at the can. [When] people come in to buy the DVD, we want our product to be almost an impulse buy.’

Being a long-lead licensee, though, timing can throw a wrench into these plans. ‘If [studios] have a theatrical release and they are bringing the DVD out three months later, you’re probably not going to be able to employ a price management strategy,’ says Ternan. ‘But what you can try to do is leverage more dollars in the channel from a marketing perspective. So when the retailers do their Tuesday street dates with DVDs and movies, right alongside that is a roto ad for the video game.’

Look for THQ to wield these strategies expertly on upcoming titles such as The Incredibles, The Polar Express, SpongeBob SquarePants: The Movie and the Spider-Man and Shrek sequels.

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