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Friday, March 11, 2016

Further Clarity to Current "DVD CORE" activities vs. New Ventures

Greetings HHSE Friends & Followers - as is sometimes the risk when presenting a higher-altitude "Executive Summary" for review - smaller details are intentionally excluded.  In the case of last night's Plate Tectonics blog, the exclusion of some information has been confusing to a few of our legitimate shareholders.  The issue to be addressed this morning is the DVD Core Business -- as has been the majority of revenues for the past few years at HHSE.

There are quite a few factors in motion that affect the "physical packaged goods market" in the USA at present.  Here are the key issues:


1).  Walmart Stores, Inc. continues to hold a commanding "national market share" of greater than 50% of all physical, packaged goods sales for DVDs and BluRays.  In layman's terms, that means that for ALL studios (not just HHSE), Walmart buys MORE DVDs and BluRays than ALL OTHER ACCOUNTS COMBINED.  As a result, when Walmart "sneezes," the entire home video industry gets a cold.

2).  Effective as of January, 2016, Walmart CHANGED the way that they are buying "non-theatrical" titles for DVD and BluRay New Release placement.  At this point, if a film has gone "straight to DVD" or had only a minor theatrical release (defined as grossing less than $1-mm at the box office), these titles can ONLY be placed as new releases on the FIRST TUESDAY of each month.  In the past, a disributor / studio could pick ANY Tuesday street date for non-theatrical releases.

3).  This policy change for HHSE means that many of the smaller titles being sold by HHSE and Medallion Releasing supplier studios are now "crunched up" with a ton of other indie product, all competing for one of about twenty new release slots for the first Tuesday of the month... as opposed to one of twenty new release slots almost every Tuesday.  So the competition for shelf space on these smaller titles has increased almost 3-X.

4).  At the same time, Walmart has lowered the effective consumer pricing of the DVD budget bins from $5.00 per DVD down to $3.74.  So the margins for budget bins have dropped... leaving "key title" new release placements as the big money spots at Walmart.

5).  Will HHSE and Medallion continue to put out onto DVD and BluRay these smaller, indie titles (and films with less than $1-mm box office)?  Yes, but it's going to be difficult to expect placement for more than three or four titles per month as New Releases.  There's still "modular" shelving placements, and budget bins, but there's always been a lot of competition to place products into those slots as well.  It is our analysis that this core business of smaller titles for the physical home video business is not likely to generate greater than $3-to-4-mm per year for HHSE, possibly even less.


One of the factors for why Walmart has reallocated video shelf space is that the smaller titles have been selling-through to consumers at generally lower turn rates... while bigger theatrical titles have been holding solid (and in some genre categories, actually growing).  Walmart is in the business of selling what its shoppers are buying.  If shoppers are skipping over B and C videos in favor of "FROZEN," then there's an argument to create an additional shelf-sku for "FROZEN" to make sure that no stores suffer the dreaded "out-of-stock" syndrome.

Walmart is honoring distributor / studio street dates for ANY Tuesday so selected for theatrical titles grossing over $1-mm.  Plus, they have allocated more prominent fixtures and space to higher-end titles... meaning that it's possible to get multiple in-store locations for higher-end video releases (Main & Front Entrances, Action Alley, Power Aisle, Video Dept. End-Caps, New Release Shelves, Free-Standing Displays).  

These retail factors make it more attractive for HHSE to put greater attention and focus onto higher-end titles for production and theatrical release.

HHSE and Medallion titles will continue to be sold to Walmart through the existing wholesale venture with Alchemy... plus through a new wholesaler as a supplemental sales partner... and selected higher-end titles will be sold through a Major Studio distribution partner.  The new supplemental distribution partner and Major Studio partner have not been formally announced as of today.  This structure is designed to give the "smaller" HHSE and Medallion titles two, separate distribution conduits for shelf space at Walmart... as well as the studio-controlled space for higher-end theatrical titles.  The best of both worlds... which is essential in an evolving marketplace.


Graphic charts visually illustrate the evolving home video landscape for HHSE and the Independent Film Studios.  These will be presented at the Shareholder's Meeting - and included in the pre-meeting agenda report which will be posted to this blog.