HDD Learns About DVD and Blu-ray Liquidation: Physical Media Still Winning

Posted Wed Jun 29, 2011 at 12:45 PM PDT by
Ryan Kugler

by Michael S. Palmer

Last week, we took a few minutes to explore current state of high definition streaming video, collectively known in the industry as Video On Demand. Basically, it was time to see how far we've come and if The Cloud is really a viable option for everyone. Forum Members had some great insights about limitations and personal experiences; for example, I had little experience with how expensive broadband (and therefore HD streaming) can be in Canada. After talking to a few of you, and during the process of researching what was available, these early years of The Cloud seem more like a first draft. Some of the services are better than others, some are even super convenient, but bandwidth is the current limitation linchpin for all video content (for some, it's too expensive, or too time consuming, or not available).

On the flipside, we have physical media like Blu-ray Disc. Still King in terms of bandwidth, and perhaps more important to consider, still King in terms of what matters most to movie studios sales. Is it smart to plan for a future where the disc has gone the way of the dodo as sales figures for physical media continue to drop? Of course, but for now, each and every week, most people still buy (or rent) DVDs and Blu-rays. This is no real surprise to regular High-Def Digest readers, as we gather to talk about the week's latest and greatest (and most controversial) Blu-ray releases. We are known to race out each week for brand new, hot-off-the-presses, super-mega collector's editions. But have you ever given a moment's thought to what happens to a DVD or a Blu-ray if it doesn't immediately fly off the shelf of your local big box store?

High-Def Digest recently got a chance for a quick chat with Ryan Kugler, the president of DVA (Distribution Video and Audio), a liquidation and wholesale company that has been specializing in home entertainment products for over 20 years. Ryan's company specializes in buying up older Blu-rays and DVDs, and reselling them; for him, the physical media business has never been better.

WHAT PERCENTAGE OF YOUR HOME VIDEO VOLUME IS BLU-RAY?

I think it's turning more and more into Blu-ray. The studios are trying to phase out DVD because Blu-ray is the new medium, and they're really trying to say, when a movie comes out, they prefer it to come out on Blu-ray. Period. As Blu-ray takes over the market, we're buying more and more, and it's growing many percentage points month to month. But as far as our overall Blu-ray versus DVD purchases, in terms of our inventory, I would say it's about 25 percent Blu-ray.

AS MORE OF A BEHIND-THE-SCENES PLAYER IN THE HOME ENTERTAINMENT INDUSTRY, COULD YOU EXPLAIN WHAT IT IS DVA DOES BY TAKING US THROUGH YOUR WHOLESALE DISTRIBUTION PROCESS.

When a movie comes out on DVD and Blu-ray, it goes to Target and Best Buy and whatever's left of Blockbuster, and other major retailers like Walmart, Kmart, Sears, Toys R Us, etc. Once it's done its run for a few months, retailers [call DVA] and say, "Hey we have some excess inventory of the DVD or the Blu-ray." Or sometimes the studio calls about product that did not sell because the movie didn't sell as many as they had hoped. Or the retailer wants to change out for another movie. And then they would call us (the retailer, the distributor, or the studio) and say, "Hey we have this excess inventory of this particular product, are you interested in buying it?"

Our company buys that inventory from anywhere on the food chain -- from the producer, studio, manufacturer, to the distributor, retailers, to the secondary retailer. We then bring it into our warehouse and put it in inventory. We then turn around and make assortments for other retailers. Discount dollar stores, flea markets, truck stops, where when you walk into a retail location, you see a bin in the front of the store or near the cash register that says "$4.99 Movies" and it's a mixture of movies, not in alphabetical order. It's just kind of like a treasure hunt type value bin where you go through it. Our business is really supplying those value bins to the retailer.

So one of your readers might have bought a movie from us, indirectly, through one of those value bins. A retailer will usually have their section of New Releases and A-Z Movies, but they'll also have another section of this area where you can just sort through stuff.

DO YOU SELL MANY BLU-RAY VALUE BINS?

No, we really haven't. When we buy Blu-ray and we re-sell it, it's for a customer specifically looking for it, whether it's a video store or a retailer who is looking to do a special section of Blu-ray or to fill some inventory.

Internet Retailers is another big area that we sell to. They're basically people who sell on different "marketplaces," like Amazon and eBay and Half.com. They buy the product, turn around, and sell it on another person's site called a marketplace, or they sell it on their own site.

THE DWINDLING DVD MARKET SEEMS TO BE HURTING MOST BUSINESS MODELS, BUT DVA IS EXPANDING. HOW DOES THAT WORK?

Well, we actually started expanding because of the dwindling CD market. We do CD music as well, and we do books. All CDs, DVDs, and books can be downloaded now. CDs, obviously, are going a little quicker because you can download a CD in 30 seconds and, as an example, I just downloaded a movie yesterday for my son because we're going to be getting on a plane, and it took three freakin' hours. So the downloading of digital [movies] isn't going to be as broad as the CD world because it's still easier just to go to a store and buy it. It's basically as long as it takes to watch it, it takes to download it. So we're expanding into other areas buying excess inventory. Those areas include buying actual Blu-ray players, DVD players, iPods, TVs.

WHAT'S THE FUTURE OF PHYSICAL MEDIA? HOW LONG WILL IT BE A PART OF YOUR BUSINESS MODEL?

I've been doing this for about 20 years, and when I started 20 years ago, I remember hearing, at the time it was called the Super Highway which we now call the Internet, there was threat of the movie business going away to the Super Highway. So I've been hearing this for 20 years that the movie business was going to go away due to people just downloading it. Currently, the downloading of movies is less than 10 percent of movie consumption, whereas the downloading of CD music is actually right around 50 percent. So physical media is still bought and sold, still needed, still used, and I think to a certain extent, there will always be something physical that you can buy to get a movie, book, or CD on. Whether it's a disc that we've been using for, what, the last 30-something years, that'll probably change to who knows, a chip, a pen, a watch. But I think there will be physically something that you can always buy to get what you want. And we will always be distributing that product.

My father always said this line, "the Buggy Whip business isn't as big as it was 150 years ago, but there's still one company selling Buggy Whips." So if we're the last company selling DVDs, then so be it and I look forward to it.

I HEARD YOU WERE AT E3 THIS YEAR; CAN YOU TELL US ABOUT YOUR APPEARANCE THERE?

We were at E3. We are in the video game business. Anything entertainment related, that's pretty much what we buy. The video game business is doing very well. The video game business can, again, be done online, but physical sales are much greater than online sales, and we've been doing it for probably around 10 years now, maybe 15. If you look at Xbox or NDS or whatever, you have all these different physical formats, and with what Wii is doing with their new console, there's ever-changing formats. So anytime the game business changes and goes through an evolution, we can tag along on the new format, but when retailers are done distributing the old physical format, there's still some retailers that want it. Small Mom N Pop chains or dollar discount chains out in Middle America where the demographics aren't as up-to-date with new change and therefore there's always one retailer -- like there's someone always selling Buggy Whips -- that wants to sell that product that's no longer widespread, or known, or used. Any time a format goes away, we take the last leg of it.

WHAT'S NEXT FOR DVA?

Small electronics. We've been doing a lot of iPods, a lot of TVs. Anything that emits or transmits or is the next phase of entertainment, we'll go with. It's a fun business, and it's been good to us. We've grown in the last couple years despite the recession -- up about $5 million in sales, so it's been going good for us.

THANKS TO RYAN FOR TAKING A FEW MINUTES TO TALK TO US ABOUT DVA AND THE CURRENT STRENGTH OF PHYSICAL MEDIA. FEEL FREE TO LEARN MORE ABOUT DVA BY HEADING OVER TO THEIR WEBSITE, WHICH HAS DIFFERENT SECTIONS FOR CONSUMERS, RETAILERS, AND DISTRIBUTORS.

AND AS ALWAYS, WHAT DO YOU THINK THE CURRENT STATE OF PHYSICAL MEDIA? I KNOW MANY OF YOU ARE DIE HARD PHYSICAL-FANS, BUT HOW LONG WILL IT LAST? ALSO, I KNOW MANY OF YOU ARE HIGH-DEF JUNKIES (AS AM I), DO YOU STILL HIT UP THE DVD VALUE BINS, OR IS EVERYTHING NOW "1080P OR BUST?" HIT UP THE FORUMS TO SHARE YOUR THOUGHTS.

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Tags: Ryan Kugler, DVA, Michael S. Palmer, Industry Trends, High-Def Retailing (all tags)