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The Distribution Biz

The Distribution Biz

June 7, 2005
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" It's like a secret society: Once you're in, you're in. "

For Roy, the American dream started out as a nightmare in disguise: a 1993, full commission telemarketing job in which his highest paycheck amounted to $99.

"I hit bottom," said Roy, a former attorney with failed dreams of working in Hollywood. "It was a company distributing B movies and adult films — a real boiler room operation, and I was miserable."

After six months of "watching and waiting," Roy said he decided to pay a lunch break visit to the company warehouse. Picking a tape off one of the stacks, he jotted down the address of the manufacturing company. In less than 30 minutes, he was shaking hands with a salesperson willing to sell him a batch of discount porn tapes.

"That's literally how I started my company," Roy said proudly. "Ten tapes and a motorcycle."

Twelve years later, that company, Empire Video Distributing of Northridge, Calif., employs 20 people, rents a new 13,000-square-foot warehouse and sells adult content to more than 2,000 clients around the country. Wal-Mart it isn't, but in a cutthroat business with plenty of product and plenty of lunch breaks, Empire Video holds its own. As for Roy, he considers success in the distribution game his ultimate feat.

America's 'Ultimate' Business
"It's the ultimate American dream business," he said. "I mean, where else can you start a company for $30?"

Talk to most distributors, and you'll hear a similar sentiment. In an industry known for burning through talent, the distribution game offers a rare oasis of stability. Entry can be brutal — expect at least two years of abject poverty and nonstop cold calling, most sales reps report — but once established, a strong customer list can keep a good distributor afloat indefinitely.

"It's like a secret society," said Joey Strange, national sales manager for Las Vegas-based Freedom Distributing Inc. "Once you're in, you're in."

Strange is one of the few willing to divulge the distribution society's closely held secrets. Last month, he joined together with First Amendment attorney Greg Piccionelli and adult film actress Jesse Jane to deliver a seminar titled "Adult Entertainment 4 Fun N Profit."

The seminar included, among other elements, a segment on distribution, including traditional DVD and VHS distribution, Internet video-on-demand and the budding field of mobile device content.

Considering that most newcomers enter the business focused on the production side, Strange said he considered his participation in the event almost a form of public service.

"We're coming across people who have very decent tapes who could actually beat out a lot of other directors on any given day," he said. "Without a distribution deal, though, they might as well be carrying around a chunk of granite."

Those who do get a deal usually wind up working with somebody like Jimmy, a sales manager at Triplex Distribution in Chatsworth, Calif. Jimmy prefers not to give out his last name but is willing to divulge his clientele breakdown: Eighty percent of his customers are "mom and pop" shop owners looking for yet another income stream. The rest can be split evenly between the video rental chains that accept adult content and other distributors.

"We pretty much buy from all the different manufacturers and bring it into one place so a retail store can call us and get it from us," Jimmy said, outlining the "one stop" business model. "I'm personally ordering between $100,000 to $200,000 worth of product a week."

Selling that product across a thousand different accounts isn't easy, but it is one reason few distributors fret openly about job security. With so many retailers and so much content to choose from, distributors learn the idiosyncrasies of each buyer. While some manufacturers do try to sell direct to retailers in an attempt to boost sales and sales price, Greg Alves, president of Zero Tolerance Entertainment, the company behind the "Grand Theft Anal" series, said his own company prefers the simplicity that comes with using distributors.

"I don't want to get involved in the store accounts," Alves said. "I sell to people who have large accounts, buy large quantities and pay on time."

Small Accounts Boost Bottom Line
Empire Video's Roy said many of his best clients are small accounts whose growth has propelled his own bottom line. He notes the case of a western truck stop that blossomed into a multi-state chain and a Midwestern beer distributor who called up looking for something extra to sell to its liquor store clients. The addition of adult DVDs to the company's inventory list has proved so lucrative that the company has since abandoned the beer trade altogether.

"The best way to grow in this business is to make your small customers better [off financially]," Roy said.

Larger clients, meanwhile, can be more problematic. Strange, a former porn buyer for Colorado Satellite Broadcast, said licensing of adult film rights accounts for 28 percent of Hollywood movie revenue, according to a 2000 report by the investment analyst firm ABN Amro. Licensing those rights, meanwhile, amounts to little more than "found money" for most porn producers and distributors, Strange said.

"On average, if you were putting in a gonzo or a wall-to-wall, you were looking at anywhere from five to eight grand," Strange said.

The reason boils down to bargaining power. Not only can cable channels pick and choose from a sea of titles, they also can use the current self-imposed prescription against hardcore programming to demand special editing privileges.

Ostensibly, these privileges give broadcasters the right to cut XX movies by mixing scenes from X and XXX versions of the same film.

In effect, however, companies have used the right to build compilations and "best of" programs that compete with porn titles still in the marketplace.

Roy admitted to eyeing both cable and the Internet as potential "threats." Still, he noted that past threats — the shift from VHS to the more piracy-friendly DVD format — have tended to solidify his market position.

"You see it in any business," he said. "The guys who know what they're doing will survive the coming shakeout, and the guys who don't know what they're doing will get flushed out. My attitude is: I'm going to stay ahead of the curve. Beyond that, what else matters?"


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