M+E Daily

As major film studios venture further into digital distribution, they are bringing with them best practices from the packaged media business. Yet those best practices continue to evolve, as supply chain management becomes more critical than ever to profitability in the packaged home entertainment industry.

Speaking to attendees of the ESCA Europe conference in London on Wednesday, Jim Wuthrich, president of international at Warner Home Video, shared his own experience from when he added oversight of Warner Bros. Digital Distribution to his responsibilities.

“One of the banes of my existence in [the physical] supply chain was making sure that I had the right product on the right shelf, in the right quantity at the right time,” Wuthrich said. “When I went over to digital, I was so excited because I didn’t have to deal with supply chain issues anymore—or so I thought. Then I found out that if you don’t have the bits in the right place at the right time, you can’t sell it either. So the same supply chain problems exist on both sides of the business, be it physical or digital.”

Aodan Coburn, executive vice president of worldwide operations and licensing at Sony Pictures Home Entertainment, concurred with Wuthrich’s holistic view in an on-stage interview at the ESCA conference. But Coburn stressed that the physical side of the business is ripe for greater collaboration among studios, vendors, and retailers.

“Sometimes we’re thinking [as an industry] that digital is competing with physical,” the Sony executive said. “Whereas if you sit with our sales people—if you talk to the territories and say, what are your real challenges?—the real challenges are not around digital at this point in time. The real challenges are around competing with other products that come into retail, which give better margin and which are easier to manage.”

Addressing these challenges in an industry as mature as DVD and Blu-ray requires a collaborative effort—namely, greater sharing of supply chain management practices among studios and vendors, said Coburn. “We should be competing around our product, not in terms of the execution and the ease [with which] we bring [products] to our customers.”

From Sony’s perspective, increased transparency of packaged media supply chain forecasts and decisions among members of the studio’s own team has already produced results. “If I look at our business in North America over the last 12 months,” Coburn said, “the number one factor in increasing our profitability is reducing the amount of returns.”

Coburn attributed lower returns processing—long a drag on the business of home entertainment retail—to “collaborating a lot further down in the supply chain,” with vendors such as packaging manufacturer AGI. In the “old world” of the DVD business, Coburn said, “we would have talked about holding inventory” for future distribution. “In the new world, we’re talking about [companies] like AGI holding the presses and holding some space for us. To be reactive in real time is incredibly important,” Coburn said, “because none of us have a view that inventory is an asset—we absolutely know that’s not the case.”

On AGI’s end, John Mullane, executive vice president of European sales and business development at AGI World, said successful supply-chain collaborations required a new level of “agility” in the packaging supplier’s response to customer needs.

Steven Brown, chief executive of Blu-ray distributor Cinram International, agreed with both Mullane and Coburn while speaking on an ESCA panel. “Collaboration is key, [but] I think there’s still some resistance,” Brown noted. “I came into this business now nearly three years ago, and everybody keeps talking about ‘last man standing.’ Frankly, ‘last man standing’ isn’t a strategy.”

Brown strongly seconded Coburn’s sentiment that accurate inventory forecasting represented the greatest opportunity for increased efficiency in packaged media distribution.

“We get paid for returns [from retailers], and a lot of people think it’s a business,” Brown said. “I think it’s asinine: it’s waste, and it should be driven out. It’s soaking up working capital that’s not required… While we’re seeing a slight reduction [in returns processing], I think it’s the largest single area [from which] we have yet to reap some real profits in this industry.”

The ESCA Europe conference continues on Thursday, with the co-located Entertainment Content Protection Summit set to tackle supply chain security issues. Visit www.entertainmentsupplychain.com for more information.