Video Execs Look to Global Effects

When Michael O. Johnson first joined Walt Disney Co.’s international home video division 11 years ago as director of sales, it was a backwater operation dwarfed, both in size and respect, by its domestic counterpart.

“Let’s put it this way--we were grossing less than $80 million a year, and we didn’t have any of our own businesses,” Johnson recalled. “We operated through licensees, and we were in maybe 30 countries and territories.”

How times have changed. Disney’s international video division has since established its own businesses in 80 markets and seen annual sales skyrocket to $1.8 billion, for a market share of nearly 50%. And the 42-year-old Johnson, who has run the division since 1986, has been rewarded by being named president of Buena Vista Home Entertainment, the newly merged unit under which Disney distributes all its home video product, domestically and internationally.

Recently, 20th Century Fox also combined domestic and international video operations under one roof and placed its international video chief at the helm. Compared to Johnson, 20th Century Fox Home Entertainment’s new president, Jeffrey Yapp, is a relative newcomer, having come to Fox in 1994 after marketing stints at Pizza Hut and Ernest & Julio Gallo Winery.

But even in those three years, Yapp has seen tremendous growth. Annual revenue has quadrupled, to $800 million, and Fox has set up shop in 10 new markets.

“When I joined the international video division here, we were at about $200 million and heading south,” recalled Yapp, now 38. “The division had been through a lot of turmoil; there were so many other issues at the studio that it just wasn’t a priority. Only in recent years has there been a cohesive vision.”

Industry observers say it isn’t a coincidence that Disney and Fox, within weeks of each other, combined domestic and international video operations and put their overseas executives in charge. The two studios are considered the most aggressive players in the international video arena, channeling their product through wholly owned subsidiaries instead of licensing it to third parties or distributing it through a joint venture (as Paramount and Universal do).

Domestically, the home video industry’s growth has slowed in recent years, particularly in rental. But video’s international potential looms larger than ever. And by combining operations, observers say, Disney and Fox are primed to capitalize on this growth.

Yapp said one of his top priorities will be to revitalize the domestic video rental market, which has been flat, by using his experience in Australia, where Fox has seen its video rental business for the last two years grow at an annual rate of 25%.

Before that, rentals had plateaued. Yapp credits the turnaround to an aggressive program in which Fox executives worked closely with the country’s key retailers. Elements included a direct-marketing campaign targeting heavy, medium and light renters; deeper buys on hit titles to satisfy demand; more advertising support; and setting up an “amnesty day” for regular renters who had been staying away because they owed steep late fees.

“Through amnesty day alone, we had a 95% reactivation,” Yapp said. “We have since gone through Europe, meeting with every major retailer and laying out a program for them, and a lot of what we told them we had learned in Australia, which is now the strongest rental market in the world.”

Johnson, who was a publishing executive before joining Disney, also cites the lessons he’s learned in international video sales and marketing.

“The French retailing business, U.K. marketing and Japanese distribution are all very complex,” he said, “and in each case we’ve faced problems we may not have come to grips with in the United States.”

As an example, Johnson said Disney began selling its product directly to large Japanese retailers because it was too difficult to deal with the multitiered distribution system in place there. Disney is now doing the same in the United States, and finding that establishing one-on-one relationships with large retailers is invaluable.

“As powerful as distributors are for rental, they focus on hit titles, and there’s not a lot of reorder activity,” Johnson said. Managing inventory is also a lot easier, he added, “because you have to have a dedication to information gathering and analysis, and that doesn’t always happen through traditional two-step distribution.”

There are also strategic reasons behind the consolidation of domestic and international video operations.

“We are already actively sharing marketing plans, and eventually we will have one creative services group,” Johnson said. “We will use the United States as something of a mother ship for all of our activities. We’re looking at putting a system into place that will allow marketing directors from all around the world to gain access to information on all our titles, so we won’t send as many memos and we can save some trees.”

“Economies of scale are critically important,” Yapp added. “It makes sense to see if you can leverage across as many markets as possible, and when you are set up as two separate units, that ability doesn’t happen as easily as you would like it to.”

Just one month before Yapp took charge, Fox expanded its domestic videocassette duplication and distribution agreement with Rank Video Services America into a worldwide one. Fox is also in the process of applying its proprietary domestic inventory-management system globally.

“And just recently, we called on the giant retail chain Carre Four of France for a worldwide program that allows us to leverage video distribution in countries in Asia, Latin America and Canada,” Yapp said.

Still, there remain key differences between the domestic and various foreign markets.

“You can never see the world as all one market; it never will be,” Yapp said. “In some markets, like Australia and Japan, there is a strong rental market, while in others, like France, sell-through dominates. And as far as video release dates go, in each market it is dictated by theatrical release dates and by competition.”

Johnson agreed. “We would love to see the day when we can release videos on a global basis, but it isn’t going to happen for a long time,” he said.

One trend Johnson would like to import from certain markets is the shorter window between a film’s theatrical release and its appearance on video. “It hasn’t hurt the theatrical business one bit in those countries, but whether we can import that to the United States I don’t know. It’s a highly sensitive issue.”