As Hilco swoops to rescue HMV, Geoffrey Macnab reports on how optimism is returning to the UK video market.

In the first months of 2013, prospects for the UK video market looked apocalyptic. HMV and Blockbuster had both gone in to administration. There was the danger that specialist video outlets would be wiped off British high streets altogether.

Three months on, problems remain but there is also rising optimism.

Restructuring specialist Hilco has stepped in to buy struggling entertainment retailer HMV from administrators Deloitte, in a deal believed to be worth £50m.

In late March, investment company Gordon Brothers Europe bought 264 Blockbuster stores out of administration, saving 2,000 jobs.

In early March, The Telegraph reported that WHSmith was returning to the CD and DVD market. Contacted by Screen, a spokesperson for Brunswick, the PR Company that advises WHSmith, denied that there had been any change in the company’s entertainment strategy.

UK video games retailer GAME is understood to be upping its commitment to film (and to Blu-Ray in particular).

The UK video market is still huge. Physical retail was worth £1,542.9m (66% of the overall market) in 2012.

One sign of the strength of the video market is the aggressiveness with which the UK supermarkets are rushing into it. Their volume share of the video market has grown to over 40% in the last five years.

Rupert Preston of UK independent distributor Vertigo calculates that “80% to 90%” of the DVD business on Vertigo’s recent hits The Sweeney and Horrid Henry was done through supermarkets”.

He adds: “They (supermarkets) are huge. If you have a film that works in a multiplex cinema, it will then sell naturally in a supermarket.”

The old idea that the supermarkets use video simply as a loss leader no longer applies.

Sainsbury’s, Asda, Morrison’s and Tesco all clamoured to offer cut price deals on Bond movie Skyfall when it was released on DVD and Blu-Ray in February. Such promotions are bound to continue but distributors say that supermarket pricing of DVDs now tends to be more “realistic”.

“They (the supermarkets) have all said that home entertainment is a key part of what they do,” says the home entertainment boss at one leading UK indie distributor, speaking anonymously as his company is in ongoing negotiations with the supermarkets.

“Supermarkets are very margin driven and they want to see a return on the space.”

According to recent research, 31% of video disc buyers think videos are an important factor when deciding where to shop for groceries and 71% regularly or occasionally browse the video section in their local stores.

With shelf space at a premium, supermarkets don’t stock a big range and certainly don’t offer catalogue titles alongside the groceries and nappies. They want new releases, kids’ movies and chart titles.

“Overstock is a supermarket’s nightmare because they have got such a massive range of items,” Lavinia Carey, director general of the British Video Association (BVA), suggests of the huge turnover in video titles.

Nonetheless, price points have risen and the supermarkets are increasingly keen to cater their more upmarket customer base.

For example, StudioCanal successfully collaborated with Sainsbury’s to provide shoppers at the store with their very own edition of Tinker Tailor Soldier Spy.

Not only are the supermarkets selling DVDs in increasing numbers. They are also becoming much more active in the online market.

Tesco owns VoD series Blinkbox and recently launched online service Clubcard TV. Sainsbury’s has partnered with Rovi to set up its own movie and TV streaming service.

Blinkbox, for one, is keen to trumpet its strong relations with the indies as well as the studios.

Michael Comish, CEO of Tesco Digital Entertainment, says: “We have a fantastic relationship with independent distributors – in total we have about 75 global content partners.

“The independent sector is very well represented on Blinkbox with content from Lionsgate, eOne, Momentum and many others. We support world and independent cinema from UK distributors like Artificial Eye, Soda Pictures and Peccadillo Pictures.”

Comish points out that Blinkbox and Clubcard TV are different businesses.

“Blinkbox offers the latest movies and TV without subscription,” he adds.

“We are proud of the fact that we have the biggest titles when they come out on DVD – something that subscription services don’t.

“Clubcard TV is a free ad supported service for the 16 million people in the UK with a Clubcard. It is an added dimension to Tesco’s very successful loyalty scheme, rewarding members with access their own online movie and TV service.”

Clubcard TV is supported by targeted advertising based on users’ shopping habits. The paltform offers 500 films (and many more TV dramas) to Tesco Clubcard holders for free.

The initial selection included titles from Nagisa Oshima, Wim Wenders and Nicholas Ray - more than just a diet of mainstream multiplex fare.

 “By using Clubcard, we can look at what customers buy from us, what things they like, and then show adverts that are relevant to them. That’s very powerful,” says Comish.

One trend among the supermarkets is to offer “buy the physical, get the digital” deals. When a customer buys a DVD in a store using a loyalty card, that customer will also be offered the online version.

Some are members of the Ultraviolet Consortium (the licensing system that allows owners of home entertainment to download it on multiple platforms).

A spokesperson for the company told Screen: “In terms of streaming video, I can tell you that Sainsbury’s Entertainment will soon offer film fans in the UK the chance to download or stream their favourite movies.

“Initially available on PC and Mac, the service will expand to a range of internet connected devices including Smart TVs, Blu-ray Disc players, handheld devices, and game consoles.”

Will supermarkets one day start opening their own cinemas or commissioning original film content? That may seem highly unlikely.

However, a few years ago, the idea that the British public would be buying DVDs in huge numbers alongside their groceries would have seemed equally outlandish.