UK video firms face Blockbuster threat

TWO of Britain's biggest video distributors, Carlton and the Rank Organisation, face a serious threat from a secret weapon being tested by Blockbuster Entertainment, the world's largest video rental group.

Blockbuster is looking at a laser copier that could enable its shopkeepers to duplicate videos on their premises rather than stock cassettes from companies such as Carlton and Rank. All Blockbuster has to do is negotiate the copying rights with the studios. If this works, the new technology threatens to wipe out more than a third of Carlton's profits and about 15 per cent of Rank's.

The system being tested at Blockbuster's headquarters in Fort Lauderdale, Florida, is designed to duplicate a video within a minute of a customer requesting it. The company could store master films in a data bank rather than having to stock recorded films.

If successful, installation of the duplicating machines could start by the end of this year in Blockbuster's 2,000 US stores and by next year in its 100 stores outside the US.

Blockbuster currently buys 17 per cent of all the videos made in the US. If it began duplicating its own videos there would be no need for them to be produced by the huge video duplication plants owned by Carlton and Rank. The two British companies copy cassettes under contract from large Hollywood studios such as Fox and Walt Disney.

Carlton is the largest player in the market. It bought the video duplication group Technicolor in 1988 for dollars 780m. Last year, its combined video and music duplication business made pounds 46.6m out of total group profits of pounds 102m. Rank's film duplication business is not quite as large as Carlton's, but it still contributed pounds 27.4m to Rank's profits of pounds 186m last year. David Lundeen, Blockbuster's head of corporate finance, said his company already has the technology to store films and music in a digital form at its Florida headquarters. It also has electronic links to its outlets, and machines that can copy compact and laser discs in seconds. They can even copy labels for packaging the music, he said.

Until now, however, video cassettes have been a problem. 'The trouble was we could not do the copying fast enough,' said Mr Lundeen. 'It was taking an hour to do the copying, which was no good for us.'

Blockbuster is keen to press ahead with the technology, because it has stock control problems. It buys lots of copies when films are first released and in great demand, but is then left holding them when the popularity fades.

At present, said Mr Lundeen, its stores will hold 20 copies of the latest release, but after the first month will send 15 of them back to headquarters and keep just five in the shop. With a 60-second duplicator, a shop would hold blank cassettes, record a film on them when somebody wanted to rent one, and wipe them clean to be used again after their return.

'We need to strike a deal with Hollywood on the rights,' said Mr Lundeen, 'but we guess that, as long as they get paid, they don't care who does the copying.'

Hollywood may not care, but Michael Green, chairman of Carlton, and Michael Gifford, chief executive of Rank, almost certainly will.

(Photograph omitted)