Nov. 30, 2000
Dear Shareowners:
As part of our efforts to be more open and communicative, your board of
directors has asked me as Chairman to update you personally on events at Rentrak
since the change of control vote at the Rentrak Annual Shareowners Meeting on
Sept. 19th. At the meeting, shareowners overwhelmingly approved a proposal to
replace the previous board with an entirely new one consisting of Cecil D.
Andrus, George H. Kuper, Joon S. Moon, James G. Petcoff, and Paul A. Rosenbaum.
Each member of the new board received more than 60 percent of the votes cast at
the meeting. Subsequently, I was elected as Chairman and installed as Chief
Executive Officer of Rentrak. On behalf of the board, I want to thank each of
you who voted for the new board members and express our appreciation for the
confidence and trust you have placed in us. Each of us has accepted your mandate
to be more responsive to shareowners and to increase the value of your
investment in Rentrak. For myself, I want to assure you of my commitment to
increasing shareholder value.
Working with and through Rentrak's management structure, we intend to provide
the strategic vision for the company and then make sure that the vision is
implemented. Our vision includes the following:
o Install strict financial controls;
o Add the products of more studios for distribution through PPT;
o Increase transaction processing and auditing work for studios;
o Add more retail stores to the PPT network;
o Grow 3PF revenues;
o Separate 3PF from Rentrak;
o Leverage existing software into new markets or new sectors; and
o Fully utilize human resources.
Financial Controls
One of our very first acts as a new board was to discontinue the Retailer Loan
Program that has been so costly to Rentrak over the years in terms of
write-offs. Though we took some additional write-offs during the quarter just
ended, we do not expect to see further red ink from this program. We are no
longer in the lending business at Rentrak.
We have reinforced other financial controls and going forward intend to tightly
manage credit as well as selling, general and administrative (SG&A) expenses. To
be specific we have already cut SG&A expenses by $100,000 per month since
October of 2000.
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New Studio
Recently, we announced signing an agreement adding the video rental products of
Artisan Home Entertainment to Rentrak's PPT system in the United States. Rentrak
will begin distributing Artisan's titles to its customer base in January.
Artisan titles are popular with home video consumers and will add depth to an
expected strong slate of titles in the January-March quarter. An important
additional feature of the agreement names Rentrak as Artisan's processor and
auditor of data for certain video retail chains that receive rental products
directly from Artisan on a revenue-sharing basis.
We are optimistic about signing other studio agreements in the future.
Processing and Auditing
You have probably read press reports indicating that Warner Home Video recently
selected Rentrak as a provider of revenue-sharing information processing and
auditing services for Warner's new Rental Direct program, which makes all Warner
home video products available directly to video rental outlets. When a retailer
chooses a revenue-sharing option, all rental and used sale data must be captured
and processed to accurately apportion both the studio's and the retailer's share
of the revenues generated for each copy of a rental title.
Rentrak will process data and provide auditing services on Warner's behalf for
video retailers that elect to revenue share through Rentrak for Warner product
and for other video retail chains, including Blockbuster, Hollywood
Entertainment, Movie Gallery and Hastings. Because Warner is a premier provider
of home video products, this opportunity is expected to have a positive
incremental effect on both revenues and earnings.
Also, we expect a number of new retail outlets to join PPT in order to receive
Warner products on a revenue-sharing basis, giving us an opportunity to also
cross-sell other PPT titles to these new stores.
Add Retail Stores
Video rental retailing continues to be very competitive. Revenue sharing through
Rentrak remains the best method for video specialty outlets and grocery store
video departments to obtain low-cost video rental products to drive consumer
traffic and ensure profitability. As we move forward, we intend to capture a
significant number of rental outlets that have never used PPT. We have
re-focused our sales efforts and the financial incentives we offer our sales
staff to not just sign new stores, but to sign high quality new stores that
order PPT products immediately and pay their bills on time.
Grow 3PF Revenues
3PF currently operates two distribution centers--one on the grounds of
Airborne's private air park in Wilmington, Ohio and one in Grove City, Ohio.
Soon after we complete the important Holiday season, we intend to move our
Wilmington operations from our current 102,000 square-foot building to a new
building that also is in the air park. The new building better suits our needs,
allows for more automation and is somewhat larger at 120,000 square feet.
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Soon after the first move has been completed, we intend to move out of the
facility in Grove City to a new building in Obetz, Ohio. The current Grove City
location contains 220,000 square feet, but has a short-term lease. The new
building being built by our same landlord contains 388,000 square feet and is
better suited to our needs.
In other words, over the course of the next several months, we expect to move
from a total of approximately 322,000 square feet of distribution center space
to more than a half-million square feet of space. These moves will allow us to
meet the expansion needs of current clients and add new ones. The most recent
quarter produced a 165 percent increase in 3PF revenues, and we want to keep
that momentum going.
In the last 60 days we have changed management's goal from focusing on
increasing revenue to more emphasis on profitability. Contracts with several
customers have been reworked and our marketing effort has been refined from a
"shotgun" approach to more select targeted marketing.
Separate 3PF from Rentrak
We believe that establishing 3PF as a separate, independent company is the best
way to maximize shareowner value for Rentrak and 3PF. We continue to explore
ways to accomplish this goal. We anticipate that Rentrak will continue to fund
the growth and development of 3PF for some time.
Leverage Existing Software
Rentrak's proprietary software for capturing, storing, analyzing and reporting
rental and used sales data is the core of our PPT business. That same software
has been transferred with some modifications into other markets in Canada, the
United Kingdom and Brazil. We believe it has potential application in several
other international markets as well.
We also believe that this software has further application in the home
entertainment industry for processing transaction data for the online delivery
of movies. Though currently in their infancy, video on demand (VOD) and video
streaming through the Internet both likely will be done on a revenue-sharing
basis and require a processor and auditor of data for the studios.
Thinking outside the box, we also believe that the software developed for video
retailers may have applications in other retail sectors that would benefit from
aggregating and reporting data for management analysis and decision making.
The very powerful online software suite, "Essentials," that we have developed
for 3PF also may have value for other business sectors.
We will be exploring opportunities to capitalize on our investments in
technology and report back to you on developments as they occur.
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Human Resources
One of the most pleasing discoveries we have made to date at Rentrak is a
talented work force poised to respond to new leadership. Rentrak's management
team and the members of the work force have responded very favorably to the new
direction we have outlined. Applying their collective skills and abilities
toward a vision of improved performance for Rentrak provides a solid platform
for future success.
The previous few months at Rentrak had been very difficult for employee morale.
With a proxy fight and fear of layoffs overshadowing daily activities, morale
was at a low when we took over. Since September 19th , there have been no
layoffs, and we are proud that the steps we have taken to improve morale have
been quite successful to date.
We reported our fiscal second quarter results on Nov. 9th,, which included a net
loss of $9.6 million. We experienced a number of one-time events that adversely
impacted our financial performance. Write-offs during the quarter for
discontinuing the Retailer Loan Program amounted to a total of $6.1 million. The
proxy contest during the second quarter that resulted in the election of the new
board produced expenses of $2.4 million and included costs for legal, proxy
solicitation and severance payments to the company's former chairman and chief
executive officer. Also, the company recorded a net loss of $0.5 million on the
sale of 200,000 shares of Hollywood Entertainment Corp. stock that it acquired
in January of this year as part of the settlement of a lawsuit with Hollywood.
As a board, we certainly were disappointed with our company's performance during
the quarter; however, we believe that we have turned the corner and anticipate a
profitable third quarter that ends on Dec. 31st. On behalf of our employees, I
invite current and future suppliers, customers and investors to join with us in
our steps toward future success.
Sincerely,
Paul A. Rosenbaum
Chairman and Chief Executive Officer
