Distribution

Part: 
Four
Chapter: 
8

The distribution network for sexually explicit video tape cassettes is similar to that for sexually explicit films. Once the distributor receives the video tape, he duplicates it. The master tape is used to produce thousands of video tapes in order to supply the thousands of "adults only" pornographic outlets and general video tape retailers across the country.[1861] The distributor also packages the video tape and prepares his advertising and promotional material. The cost to the distributor for the purchase, reproduction, packaging and advertising of a video tape is on average between eight and fifteen dollars.[1862] The distributor then sells the video tape to a wholesaler for about thirty-one dollars.[1863] Generally, the distributor's profit margin is between one hundred percent and four hundred percent for a video tape.[1864]

Recently, the major sexually explicit film distributors have rapidly entered the national video tape market.[1865] Some of these distributors have completely discontinued eight millimeter films and are focusing on video tape distribution.[1866] This is not surprising in light of the fact that the sexually explicit video industry's profits are in the hundreds of millions of dollars annually.[1867]

The wholesalers sell the video tapes to retailers across the country. Each wholesaler may carry thousands of titles from different distributors and sell the video tapes to retailers at a two to six dollar profit.[1868]

Many times the distributor and the wholesaler are one and the same.[1869] Sometimes, the producer, distributor and wholesaler are the same individual or corporation.[1870]

It has been estimated that there are at least twenty thousand home video retail outlets nationwide.[1871] Many general convenience stores now carry pre-recorded cassettes for sale or rental.[1872]

More specifically, it has been estimated that in 1985 there were approximately nineteen thousand video specialty stores in the United States. A video specialty store is a retail outlet which derives more than fifty-one percent of its gross revenues from the sale or rental of video products.[1873] It has also been estimated that in the United States there will be approximately twenty-four thousand video specialty stores in 1986 and twenty-seven thousand in 1987.[1874]

Sexually explicit video tapes can be purchased in "adults only" pornographic outlets as well as a significant number of general video retail outlets.[1875] One source estimated that at least twelve thousand of the over twenty thousand general video retail outlets across the United States distribute sexually explicit video tapes.[1876]

Once the tapes are in the stores, they are either rented or sold.[1877] In 1985 it was estimated that one in five pre-recorded video tapes was purchased .[1878] The average price of all pre-recorded video tapes was forty-two dollars,[1879]  while the average price of sexually explicit video tapes ranged from sixty to eighty dollars.[1880] The sexually explicit video tapes also rented for between four and seven dollars a day.[1881] The retailers of these sexually explicit video tapes often realize a profit of twenty-three to twenty-eight dollars on each video tape sold.[1882]

The proportion of sales to rentals is expected to increase as the price of prerecorded video tapes declines.[1883] In 1985, at the retail level there were approximately $3.5 billion in sales of pre-recorded video tapes as compared to approximately $3.8 billion spent on theater tickets.[1884] An estimated eighty percent of the $3.5 billion spent on prerecorded video tapes was on general release movie programming.[1885]

It has also been estimated that VCR playback will account for twenty-five percent of total television set usage in 1995.[1886] In evening prime time hours in 1995, VCR playback may command seventeen percent of total television set usage.[1887]

The Video Software Dealers Association (VSDA)[1888] conducted a survey of its members on September 6, 1985 regarding the retail of "adult" video tapes. Table 3 is a reproduction of the survey the VSDA sent to the Commission.

Sexually explicit video tapes are advertised on posters inside "adults only" pornographic outlets as well as trade magazines such as Adult Video News. These videos are also advertised in sexually explicit tabloids, magazines and paperback books. In addition, some video clubs advertise "X" rated videos in their publications and some general video retailers also advertise these sexually explicit videos.

 

Table 3

"Adult" Survey[1889]

  • Number of individual stores that responded to survey: 2279
  • Number of companies that responded to survey: 705
  • Stores which carry "adult" product:
    							YES    NO
        Number of stores   965   1314
        % of respondents   42%   58%
  • The following questions were answered by retailers who carry "adult" product:

 

What percentage of your gross dollar volume is in "adult" product?

					% of "Adult" Product      % of Respondents
        0-5%                    13%
        6-10%                   23%
        11-15%                  25%
        16-20%                  19%
        21-25%                  8%
        26-35%                  11%
        36-90%                  1 %

What percentage of your daily transactions are in "adult" product?

					% of "Adult" Product    % of Respondents
        0-5%                    18%
        6-10%                   25%
        11-15%                  25%
        16-20%                  16%
        21-25%                  6%
        26-35%                  9%
        36-90%                  1%

What percentage of your total inventory is in "adult" product?

					% of "Adult" Product    % of Respondents
        0-5%                    15%
        6-10%                   45%
        11-15%                  19%
        16-20%                  11%
        21-25%                  5%
        26-35%                  4%
        36-90%                  1%

Notes

  1. Los Angeles Hearing, Vol. I, William Roberts, p. 73.
  2. Id., p. 72.
  3. Id.
  4. Id.
  5. Los Angeles Hearing, Vol. I, Robert Peters. p. 35.
  6. Id.
  7. Id.
  8. Los Angeles Hearing, Vol. I, William Roberts, p. 72.
  9. Id.
  10. Id.
  11. Merrill Lynch, The Home Video Market: Times of Turbulence and Transition, (Jan. 6, 1986), p. 5.
  12. Id.
  13. Interview with Ronald Siegel, The Fairfield Group (Mar. 6, 1986).
  14. Id.
  15. New York Hearing, Vol. I, Gerald Piazza, p. 294.
  16. Los Angeles Hearing, Vol. I, John Weston, pp. 203A-13 citing, VCRs: Coming on Strong, Time, (Dec. 24, 1984), p. 47.
  17. Merrill Lynch, The Home Video Market: Times of Turbulence and Transition, (Jan. 6, 1986), p. 9.
  18. Id.
  19. Id., p. 3; Video Software Dealers Association, 1984 VSDA Annual Survey 3.
  20. Miami Hearing, Vol. I, Mike Herish, p. 91; Los Angeles Hearing, Vol. I, William Roberts, p. 72.
  21. Los Angeles Hearing, Vol. I, William Roberts, p. 74E.
  22. Id.
  23. Merrill Lynch, The Home Video Market: Times of Turbulence and Transition (Jan. 6, 1986), p. 9.
  24. Id.
  25. Id.
  26. The Abernathy/MacGregor Group Press Release entitled "Home Video Cassettes to Become Dominant Entertainment Medium by 1990s," p. 4.
  27. Id., p. 5.
  28. The Video Software Dealers Association is a national trade association whose regular membership consists of approximately two thousand retailers and wholesalers of video software throughout the United States and whose associate members include a number of motion picture companies, independent video producers and manufacturers of various products related to the video industry. Letter from Charles B. Ruttenberg, Counsel, Video Software Dealers Association to Alan E. Sears, Executive Director, Attorney General's Commission on Pornography (Jan. 16, 1986).
  29. The term "adult" was not explained or defined in the survey. It is therefore somewhat uncertain what participants included in this category. Interview with Charles Ruttenberg, Counsel, Video Software Dealers Association (May 9, 1986).