As selling videos on the Web is still a recent concept in e-commerce, the key for on-line video retailers now, analysts say, is to mark their turf in cyberspace.

‘It’s a small market,’ says Ken Cassar, an analyst at New York-based Net think tank Jupiter Communications. ‘No one out there has been able to develop a strong brand name. The companies that do, that are able to grab market share, as well as sustain losses for a couple of years, will be the ones that do well.’

According to a Jupiter study of people who purchased products on-line last year, only 5% bought videos. Cassar estimates Web-based video sales for 1998 at between US$20 million to US$30 million. It’s a paltry sum when seen against the industry’s off-line revenues of US$8 billion, but industry experts expect that number to balloon over the next few years.

‘My sense is that Web-based sales may push US$100 million in the next year,’ says video analyst Tom Adams, president and senior analyst at Adams Media Research. In part, Adams bases that figure on the US$100 million that Hollywood Video forked out for Reel.com, currently considered to be the front-runner in virtual video retailing, with estimated revenues of US$10 million for 1998.

In order to get a cut of those projected riches, on-line video retailers will have to overcome a number of challenges that plague all hard goods new to the Net. At the top of the list will be their ability to broaden their customer base. Right now, the profile of the average customer buying movies on-line is a 25- to 49-year-old male film buff. What does this mean for children’s videos? In varying degrees, retailers will be targeting kids and families through the introduction of special on-site features-known in e-commerce circles as ‘personalization’-and by stocking more titles that appeal to both groups.

‘We’ve been accelerating our move into a more mass and family market through a number of promotions,’ says Julie Wainright, CEO of Reel.com (www.reel.com). One of Reel.com’s ploys included selling Titanic as a loss leader at the heavily discounted price of US$9.99. Another tactic saw the company rejig its kid component to offer more kidvid titles, as well as pertinent info for parents, such as the age appropriateness of tapes, summaries of films and suggestions for titles that have similar content to past purchases. In addition, to raise its profile with mainstream consumers, Reel.com embarked on an aggressive marketing campaign in August, running ads for the site in major dailies and consumer magazines, such as People and Entertainment Weekly. Currently, kidvid sales make up 1% of Reel.com’s gross revenues, a figure Wainright predicts won’t increase any time soon. ‘In the short term, we believe the majority of our business will come from people looking for hard-to-get titles that skew a little older,’ says Wainright.

On the other hand, BigStar (www.bigstar.com), which launched on the Web last May, expects sales of kids titles to account for a much larger share of its revenues, roughly 35% to 40%, according to David Friedensohn, CEO and co-founder of the company. In its kid section, called ABCBigStar, the company offers perks similar to Reel.com’s, plus some other proprietary goodies, like reduced prices on your first kidvid buy and discounts on subsequent select video purchases. The company is encouraging customers to register their preferences and the age of the child they’re buying for, so when staff locate movies that fit their criteria, they can notify them immediately via e-mail. ‘We’re like your personal shopper of children’s videos,’ says Friedensohn. Beginning in November, BigStar is also initiating a free gift-wrapping service for certain kids titles.

That gift wrapping and other services will translate into an exodus of consumers from the local Wal-Mart or Blockbuster to an on-line movie store is far from inevitable. The bricks-and-mortar retailer will always have a price advantage-on new kids titles, anyway. Since most virtual video stores don’t maintain their own warehouses, they must pay a portion of their profit margins to drop shippers-video distributors like Baker & Taylor, for example, who, in turn, ship out the videos to customers who have ordered them on-line. Then there’s the shipping costs themselves, which jack up the price of tapes for the customer. What on-line stores can offer the mainstream consumer, however, is variety of selection and personalized service.

‘For sure, you can go to Wal-Mart and get the latest Barney video for a few bucks cheaper, but that’s it. You type in Barney at our search prompt, and you’ll see 20 different titles come up, with information on who directed the movie, who wrote the screenplay and who did the music,’ says Dave Mason, co-founder of VideoServe (www.videoserve.com), an on-line retailer, owned by Ingram. (VideoServe, Reel.com and BigStar all offer in excess of 100,000 titles, about 90,000 more than your local Hollywood Video, which carries about 10,000 titles.)

‘As a parent of a six-year-old, it’s hard for me to find some of the titles that I loved as a child,’ says BigStar’s Friedensohn. ‘I mean, you can get Disney tapes anywhere, but, really, the value added from an on-line perspective is, when consumers say, `I saw this Raffi tape and I can’t find it in any store,’ to be able to say, `but if you come to BigStar, you’ll find it right away.”

Even on the issue of price, Reel.com believes it can mount something of a challenge to the bricks-and-mortar stores. Hollywood Video plans to filter its A-list titles that have lost their rental appeal with the public through Reel.com at prices equal to or less than most stores.

‘It’s one of the reasons we’re beefing up our family and kids section,’ says Wainright, ‘because we’re going to have a huge supply of previously viewed tapes.’

All virtual video retailers currently competing on the Net would be wise to seek a competitive advantage somewhere, because the playing field is about to get a lot more crowded.

‘I wouldn’t be surprised if entertainment colossals like Amazon.com, Borders or Barnes & Noble went into the on-line video business,’ says Cassar. ‘It’s very easy to set up shop with a Baker & Taylor or Ingram.’