Ryan Kugler calls his business “a secondary wholesaler.” It’s a nice way of saying he buys and sells stuff nobody else wants.

Kugler is president of Distribution Video & Audio, a Burbank firm that buys movie studios’ DVDs that are piling up in the warehouse.

“When a movie comes out, we aren’t even in anyone’s imagination,” Kugler said. “But if the movie flops, then the studio calls me because they have several million units to move.”

DV & A; is the clearinghouse for remaindered DVDs, CDs and video games that manufacturers can no longer sell at retail price. The company buys them for pennies on the dollar, then sells them at low margins to secondary retailers such as 99 Cents Only Stores, Internet sites or other bargain-basement outlets. It buys and sells 20 million items every year.

Besides movie flops, another factor that sends remainders to DV & A; is changing technology. When Sony Corp.’s Blu-ray became the industry standard, HD DVDs started down the road to obsolescence. That means a mountain of them that the studios wants DV & A; to move.

“Whenever there’s a shift, we do very well,” said Kugler. “We’ve moved millions of HD units, and we’re told by the studios it’s pretty much done. But we were told the same about VHS years ago and we still get calls from studios who have some to sell.”

As entertainment media move to online distribution, the future of selling remaindered discs is a real question. Kugler noted, however, that downloads don’t have the same image quality as discs, so he believes that discs still have some years left.

The process

In the DVD food chain, the studios first sell new releases to large retailers such as Wal-Mart, Best Buy and Target, as well as rental chains such as Blockbuster. Next, the studios sell to the primary wholesalers that move the product in convenience stores and regional retail chains.

Months, or even years, later, all of these players studios, retailers and wholesalers may find themselves stuck with too many DVDs, especially if a highly anticipated movie flops.

DV & A; steps in and buys the movies that are unsold by the studios or returned from the primary wholesalers. The company pays 100 percent cash in advance, and hauls the discs away from the studio and wholesaler warehouses.

Kugler pays the studios and the wholesalers less than $1 for a DVD that originally retailed for $20 or more. The advantage? The sales are final. DV & A; sells the product to about 2,000 small accounts that include museum gift shops, truck stops, liquor stores and libraries. Its larger accounts include Internet resellers and dollar-store chains.

While a mainstream retailer that buys DVDs direct from a studio might mark up its prices as much as 40 percent, Kugler usually has margins in the 5 percent to 10 percent range.

Jerry Greenberg, merchandise manager at Trans World Entertainment, owner of the FYE store chain based in Carson, said he often buys product from DV & A; to fill the discount DVD bins in the front of his stores.

“That’s where DV & A; comes in for us,” Greenberg said. “It could be brand-new stuff down to stuff that’s just junk.”

DVA started in Florida in 1988 when Kugler’s father, Ben, and a partner decided to enter the VHS-Beta video distribution market. Eventually, Kugler, a brother and a sister-in-law bought out Ben. The company still maintains a warehouse and offices in Florida, and another brother and Ben Kugler still sit on the company’s board.

Along the way, the company expanded from movies into music CDs, video games and books. The company’s best-selling categories are A-list movies; Billboard Top 100 CDs; children’s and action films; and religious, urban and Spanish-language titles, all remaindered or victims of changing technologies.

Kugler came to California for better access to movie studios, record labels and video game publishers. The company has 40 employees, a number that has held steady for the last three years.

While the demise of the HD DVD format has given Kugler more product to sell, consumers haven’t rushed into the Blu-ray format because it requires a play-back machine that costs about $300 and new discs that typically cost up to $25 compared with about $15 for standard DVDs.

But the world of tangible entertainment media may be coming to an end.

“I agree with a number of analysts who believe Blu-ray won’t replace DVDs before something else replaces them both,” said Rob Enderle, an electronics industry analyst at Enderle Group in San Jose. “Ease of use conquers all, so at some point, we’ll all be streaming movies into our homes.”

Enderle believes the transition to online movies will take five to seven years to complete.

Does that spell doom for DV & A;? Kugler doesn’t think so. He said downloading won’t give the high-definition images of Blu-ray and so far “downloading sites are not doing the business they expected.”

What’s more, studios make more money from discs, so he doesn’t see discs dying off soon.

Distribution Video & Audio

Headquarters: Burbank

Chief Executive: Ryan Kugler

Founded: 1988

Core Business: Sells remaindered video discs, music CDs and video games to retailers at deeply discounted prices

Employees in 2009: 40 (same as 2008)

Goal: Double revenues in the next three years through acquisition and organic growth

Driving Forces: Excess inventory, and rapid changes in music and video formats that make previous media out of date