Slow death for video rental business

MANILA, Philippines - The speed by which videos of boxer Manny Pacquiao’s ring fights reach sidewalks — less than a day after the live TV feeds — shows that in the video business, money goes to those who are fast. Precisely why, apart from the price difference, the once thriving video rental business is now dead — well, almost. The advent of cheap pirated DVDs has rendered the business obsolete, leading to the closure of local franchises like ACA Video, American Video, Blockbuster, Planet Video and Video Craze. The popularity of video Torrent files on the Internet, which offers a wide selection of near-DVD quality movies, gives Filipinos added reason to not purchase legitimate copies. Among the video rental stores of the 1990s, only Video City remains a major player, but that doesn’t mean it is unscathed. Aimie Abilgos, sales and marketing manager of Video City, said they only have 119 stores now, from almost 300 six years ago. This year alone, the Viva Entertainment firm has closed 30 to 40 stores, and may shut more next year. The company, said Ms. Abilgos, lost as much as 18% in rental sales this year alone due to piracy, up from 12% a year ago. Pirated DVD vendors, she said, go as far as setting up stalls in front of their outlets, taking away customers. She said legitimate businesses were at a disadvantage given the speed and the bargain prices that pirates offer. While Video City can sell VCDs and DVDs for as low as P75 and P125, respectively, these apply only to old titles. Contrast this with pirated DVDs, which sell for as low as P25. Aside from piracy, Video City also has had to grapple with high fuel prices, which discourage people from visiting their shops inside malls. Jay Fonacier, president of video and music retail chain Odyssey, said their revenues and profits could increase by more than half if they did not have to compete with pirates. Aside from price cuts, the company also tries to improve the shopping experience by giving freebies and organizing autograph signings to attract customers, he said. According to the Association of Video Distributors of the Philippines (AvidPhil), pirates control 70% of the P6-billion industry. AvidPhil Executive Director Eduardo Sazon, in a telephone interview, said video distributors, who supply DVDs and VCDs to retail outlets like VideoCity, are forced to lower their margins to 8-10% from 25-30% due to piracy. Imported DVD titles have gone down to P500 on the average from P800 to P1,500 two years ago. Old titles are being sold for as low as P150, while newer releases and blockbuster movies go as high as P800 to P1,500. "Piracy is like selling soft drinks," Mr. Sazon said. "Pirates sell the entire product but only pay for the bottle, while legitimate businesses also have to pay for the intellectual property for the actual drink," he added. Mr. Sazon, who is also a member of the National Cinema Association of the Philippines, claimed the home video business has the best potential for growth in the entertainment industry since fewer people patronize moviehouses. But while conditions have improved from five years ago when legitimate firms only accounted for a fifth of the industry, the government has to do more. Mr. Sazon said the state should increase the budget of the Optical Media Board (OMB), which seized 4.9 million pirated optical discs worth P1.3 billion in 2,400 inspections in 2007, an all-time record. In a telephone interview, OMB Public Information head Von Lee Alfabeto noted that the agency’s haul so far this year was 2.14 million discs worth P682 million, taken in the course of 1,024 inspections. He expects operations to pick up during the holiday season. The OMB, however, is constrained by limited funds. It only has 15 agents, mostly concentrated in Metro Manila. "Considering our manpower and budget, we are efficient. But we are not effective," he told BusinessWorld. Mr. Alfabeto said piracy usually becomes a problem in urban areas where people have money to burn for technology. "Once they have access to these entertainment [gadgets] such as DVD players, they start purchasing pirated items," he said. Unlike its neighbors in the region, however, the Philippines is relatively tame as far as piracy is concerned. The country has the fewest known disc replicating plants at 10, and it imports three-quarters of its pirated discs from Hong Kong and Malaysia. Mr. Alfabeto noted that because of OMB raids, the sale of pirated video discs in former hot spots like Virra Mall, Greenhills Shopping Center in San Juan and Circle C Mall in Project 8, Quezon City has subsided. Big malls have also stopped condoning pirates to avoid the bad publicity. But go to Arlegui St. in Quiapo, Manila — known to be the pirated DVD haven — and one will see that in the Philippines, piracy doesn’t have to be a clandestine operation. The OMB has often been criticized for going only after retail pirates and not the big fish who fund the illegal trade. But Mr. Alfabeto claims OMB investigations have found that the bootleg industry is being run by international criminal syndicates, which are turning to piracy due to the ease of selling counterfeit DVDs compared with drugs and guns. "What the public does not know is that they fund criminal syndicates when they buy pirated materials," he said. - BusinessWorld