KPS Video Express had everything going for it, until a combo of the Asian Economic Crisis, regulatory changes, and piracy sunk its business model.
KPS Video Express (金獅影視快線) was once one of Hong Kong’s retail titans: it had strong earnings, prime locations, a household name, and ambitions for Asian dominance. Yet by 1998, it imploded and vanished into obscurity.
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Shaky fundamentals: supply chain and regulatory shocks
To stock their shelves with VHS tapes, LaserDiscs, and CDs, KPS were largely dependent on large, local oligopolistic distributors, who took full advantage of their outsized market power. Their strong-arm tactics left KPS exposed to high prices, limited supply, and selection, eroding the company’s profitability.
Garrie Roman, founder and former managing director of KPS, recalled that the distributors would tell him “‘If you don’t buy this many, I won’t sell you any.’”
“On top of that, the prices were too high, and then the quality of the movies began to decline, so we were buying packages with a lot of crap in them.”
“Everything worked around their needs. They had no consideration for the end user. For example, when we would try to secure more copies of films that had done especially well, we would go back to the distributor and say, ‘These films are strong performers. Can we get some more?’ They’d say, ‘No, we don’t have any and we won’t duplicate them. It’s too troublesome. You should have bought more when we first released it.’”
To mitigate these constraints, KPS turned to parallel imports (genuine products sourced from overseas markets without the local distributor’s authorization). At one point, parallel imports accounted for 40% of KPS’s catalogue. However, this workaround was eventually closed: under pressure from local distributors and the U.S. entertainment industry, the Hong Kong government passed the 1997 Copyright Ordinance, banning parallel imports.
This legislative change further tightened distributor control, reduced product variety, and drove up costs. Ostensibly designed to protect intellectual property, in practice it protected distributor margins, and left consumers with the cinematic equivalent of leftovers.
Rowan assessed that “...because the distributors were raking off so much, many of the little (mom and pop) shops had to close, and even the chain stores were having a tough time making ends meet.”
Rapid, but undisciplined expansion
KPS rapidly grew throughout the years, opening huge “megastores” throughout Hong Kong in prime real estate, such as in Central and Causeway Bay.
Roman explained that KPS had to keep expanding to pay for the costs of procuring product and video rights, subtitling, tape duplication and store maintenance, but more importantly, an attempt to gain more leverage with distributors.
Ironically, expansion was one of the reasons for their downfall. Stores were opened within 10 minutes walking distance of one another, and this undisciplined expansion cannibalised customers, increasing costs disproportionally to revenue. This hubris would soon meet an unforgiving adversary: the Asian Economic Crisis.
Torpedoed by the 1997 Asian Economic Crisis
1997 was an annus horribilis for the Asian economy, Hong Kong being no exception. Hong Kong saw both deflation and depression set in, with property prices and stock prices plummeting by 65% and 25% respectively. Unemployment soared to historic highs reaching 8.3% by May 2003. People shut their wallets and fiscal austerity roared back into vogue.
With less money for discretionary spending, KPS was hit. At that time, piracy was commonplace in Hong Kong, and one could purchase a pirated Video CD (VCD) for HK$15 to $20 off the street, or in piracy meccas such as 298 Computer Zone. In comparison, legal products were priced between HK$99-150.
This period was also when broadband internet, with download speeds between 256kbps and 1.5 Mbps, became commonly available in Hong Kong, meaning more tech savvy users could download pirated VCDs from internet forums and chat rooms.
The market was effectively transforming from a rental market, to a sell-through market. Driven by economic pressures from one of the largest economic collapses in modern history, demand dropped as cash strapped families stopped renting, choosing to buy pirated versions instead.
The final blow: Coupons
Hong Kong’s consumers have always been fiscally savvy, looking for a good deal. Pre-paid coupon packages catered to this, which when redeemed, offered rentals at reduced prices compared to if a customer paid cash per rental. This provided KPS on ongoing stream of revenue to continue expansion.
Consumer confidence in the coupon system was shattered in April 1998, when Maria’s Bakery suddenly collapsed, leaving over HK$3.5 million worth of unredeemed coupons. This set the stage for public anxiety when rumours swirled in May of the same year that KPS was not in good shape.
By June, KPS validated these rumours when they abruptly announced a “coupon burn” campaign, where all coupons were devalued and given a short expiry date.
This did little to inspire consumer confidence. If anything, it inspired a run on the stores that would have impressed even the most seasoned central banker.
Already stung by the situation with Maria’s Bakery, people sued KPS and won, forcing KPS to refund coupons on demand. It’s likely that KPS simply did not have the funds to do this, finally pushing them over the cliff into bankruptcy. While prepaid coupons had once provided a steady revenue stream for expansion, their value depended entirely on consumer trust. When that trust evaporated, KPS found itself saddled with liabilities they could not meet.
Was KPS’s collapse inevitable?
Even if KPS had survived, it would have likely just pushed the date of its obituary out a few more years. The affordability of broadband internet, and the introduction of IPTV (an early Netflix) by Hong Kong Broadband Network (HKBN) and PCCW in 1999 and 2003 respectively, signalled the decline of physical media. The company’s limited profitability left little room for the kind of innovation or diversification that might have prolonged its relevance. In that sense, KPS’s fate mirrored that of global peers like Blockbuster, who also succumbed to the digital revolution.
KPS didn’t fail because it made bad decisions. It made reasonable decisions in a world that then changed the rules around it. The parallel imports workaround was sensible until legislation removed it. The expansion strategy was logical until the economy collapsed. The coupon model worked until a bakery destroyed consumer trust in prepayment schemes overnight. Each decision was defensible in isolation. Together, under simultaneous pressure, they became fatal.
The real lesson of KPS isn’t that disruption is inevitable. It’s that businesses are rarely undone by single shocks - they’re undone by the compounding of shocks they never stress-tested together. Any one of KPS’s problems might have been survivable. All of them at once wasn’t.
As the lights dimmed on KPS Video Express’s once-bustling stores, it signalled not just the end of a business, but the quiet passing of an era when Hong Kong families would spend their evenings together, huddled around the TV watching the latest movie on video tape.
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Additional sources
Morr, Alison L. “Hong Kong’s Copyright Ordinance: How the Ban on Parallel Imports Affects the U.S. Entertainment Industry and Hong Kong’s Free Market.” Hastings Communications and Entertainment Law Journal, vol. 21, no. 2, 1998, pp. 393–431. UC Law SF Scholarship Repository, https://repository.uclawsf.edu/hastings_comm_ent_law_journal/vol21/iss2/3.
Consumer Council. Consumer Protection on Prepayment and Retailer Insolvency: Chargeback and Beyond. Hong Kong Consumer Council, Feb. 2017. https://www.consumer.org.hk/f/initiative_detail/301155/407042/Chargeback_Report.pdf.
Curtin, Michael. Playing to the World's Biggest Audience: The Globalization of Chinese Film and TV. University of California Press, 2007 (p. 80)
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