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I started out thinking that Blockbuster and Movie Gallery would have a lot to say about Blu-ray Disc stimulating the rental market, especially with the price of Blu-ray Discs for purchase remaining relatively high. Both companies have been around a long time and have had to reinvent themselves many times. Suffice to say, I called and e-mailed both of those companies several times asking for interviews, but they had nothing to say about Blu-ray. I came to the conclusion that Netflix’s continued gains in the marketplace truly tell the story of how the market is developing now, since most of the company's gains have come at the expense of traditional brick-and-mortar stores. Netflix offers many different kinds of renting plans ranging from $4.99 per month to $16.99. Another increasingly prominent option is Redbox. From an initial launch of 12 kiosks in 2002 in grocery and convenience stores, Redbox currently features more than 10,000 locations nationwide and is available in each of the contiguous United States. In January 2008, Redbox surpassed 100 million DVD rentals, but in December, Redbox VP of marketing Gary Lancina said that Redbox’s figures were now more than 250 million DVDs rented nationwide. Each fully automated Redbox kiosk holds approximately 700 DVDs, representing up to 200 of the newest movie releases. New titles are made available every Tuesday. What’s up with video on demand, and how is that impacting the rental market? No doubt, there is a lot of experimenting going on with Blockbuster, Netflix, Amazon, and others. One question important for optical disc manufacturers is, will streaming and download wipe out physical format rentals? Not likely, at least not for a while. Netflix director of communications Steve Swasey expects Netflix's disc rental business to continue to grow for the next 5-10 years. Maybe these rentals will not come from new customers, but at least renting will remain consistent among current users. The good news for manufacturers is that Netflix rents 100,000 different titles on DVD, whereas the typical video store has about 3000 titles, according to Swasey. Netflix ships more than 2 million DVDs a day, representing 46,000 different titles on average. This long-tail approach keeps more titles in play than brick-and-mortar stores can. "We have 42 million discs in our inventory. We buy from the studios or the replicators and then ship them to our distribution centers all over the U.S," Swasey explains. All of these previously viewed discs in the market brings up the next question. Where are they all ending up? Netflix used to sell the previously viewed discs, but found that selling them to wholesalers who sell directly to the public makes more sense. In mid-2008, Redbox began offering used DVDs for sale at its rental vending machines in thousands of locations. At these spots, people can either rent Redbox titles for a $1 a night or purchase a previously viewed one for $7. Borders.com and Trans World have recently begun offering previously viewed discs as well. Just last week, Video Business released a report on the growing used-disc market. It’s hard to find numbers on the actual size of the used business, but one distribution source told Video Business that used disc sales are less than 10% of the overall DVD business. Studios are not fond of this business since they don’t necessarily share the profits, but, to me, sales of used discs proves that consumers still have enthusiasm about physical product, which is always something replicators like and need to hear. Blu-ray also adds another dimension to the disc-rental business. It would seem more logical that early Blu-ray adopters willing to spend the money on full-blown home theaters would rather buy product. Netflix’s Swasey says that's not necessarily the case. "Blu-ray buyers are early adopters, but they their behavior is not all that different" from the average video consumer, he says. "They don’t want to spend $25 for a Blu-ray Disc unless they know they are going to love it. They rent it, then they buy it. America is a nation of collectors, but we collect wisely. More than 1,000 titles are available on Blu-ray right now. Do you want to own them all? Not likely. Do you want to watch all of them? Maybe," he said.
For the first two weeks of 2009, rental spending was down 4 percent compared to the first two weeks of 2008, according to Sean Bersell, vice president of public affairs at The Entertainment Merchandisers Association (EMA). "We’re not sure whether this is due to belt-tightening by consumers, the weather, consumers buying discs to watch on big-screen TVs they bought for Christmas, or some other factor," he says. One thing is for sure: With movie theaters--at least in New York--often charging upwards of $10 a ticket, renting a movie in any format is cheaper than a trip to the theater. Redbox says, "With the current state of the economy, the convenience and value [of Redbox rentals[ have made the service increasingly appealing to consumers. In fact, redbox recently broke a company record, renting more than 1 million DVDs on one day." EMA does anticipate that the rental market will remain healthy for the foreseeable future. "Home video has always been about convenience and value," Bersell says, "and rental--whether from a brick-and-mortar store, a kiosk, an online DVD rental service, or a digital service--provides incredible convenience and tremendous value. We expect that consumers will continue to embrace rental, as they have done historically." Debbie Galante Block (debgalante at aol.com) is a freelance writer based in Mahopac, N.Y.
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