SEPT. 15 | Americans’ proliferating entertainment options, including digital delivery, and the home entertainment market’s shift to sell-through are not impacting retailers in the smallest markets nearly as much as those in major metropolitan areas, according to retailers and researchers.
In markets with populations of less than 50,000, bricks-and-mortar rental turns year-to-date through August have stayed even with last year, according to NPD Group. For markets housing 250,000 to 499,999 people, rental volume has fallen 7%. The largest markets, with more than 2.5 million residents, are off 15% from last year, NPD found through its VideoWatch consumer tracking survey.
(Rental revenue nationally was up 2% through Sept. 3, according to Rentrak’s Home Video Essentials, which collects point-of-sale data including rapidly growing online rentals.)
Many video store owners agree with NPD’s assessment, believing that big cities’ increasing access to digital entertainment options and the growth of sell-through DVD are among the factors negatively impacting these markets’ rental transactions.
“We are hearing that small towns don’t suffer to the same extent as the big towns,” said Rod Eglash, president of Milwaukee’s RSE Video Discount Superstore. “There’s less competition from the chains, and there are fewer choices for entertainment. But we have a Target across the street and a Best Buy within two miles and [pro-sports teams] the Brewers, the Bucks and the Packers.”
Located in a market with more than 1.5 million residents, RSE’s 2006 rental revenue is down about 9% through August versus the same time last year.
High-speed Internet capabilities, providing greater access to digital downloads, are changing the habits of big city households more so than rural households.
By the end of 2005, 24% of adult rural Americans were equipped with high-speed Internet, compared to 39% of adults in urban and suburban locations, according to a Pew Internet Project study.
Sitting in Virginia’s Shenandoah Valley, holding towns with populations less than 50,000, Backstage Video has expanded from one to nine outlets since 2001.
“We are the only option in town short of a high-school sporting event,” Backstage president and owner Brad Driver said. “This is still a very viable business in that we’re giving people something to do.”
Additionally, Driver and other small-town rentailers believe they can generate profits easier than their big city brethren because of differences in building leases and advertising expenses.
To promote Backstage, Driver simply buys one radio ad for one station and can cover the entire Shenandoah Valley. A big city tends to be divided by dozens of rival stations.
Video Buyers Group president Ted Engen notes that major market rent can total $25 per square foot, compared with $2 to $3 for secondary markets.
“Rural markets are also extremely conservative,” Engen said. “And they tend to be very consistent. There’s less money in the market” for residents to try new, emerging leisure activities.
Through July 2006, for VBG stores in secondary markets (which it considers 50,000 to 300,000 in population), rental revenue is on average up 3% to 5% from the same 2005 frame. But in some major VBG markets, including Chicago, rental has slid 10% to 15% for certain stores.
One of these troubled Chicago rentailers, a Total Entertainment outlet, surveyed its customers and found that patrons were increasingly watching content off digital video recorder machines, such as TiVo.
National Entertainment Buying Group president Todd Zaganiacz notes that one of its members, Movie Loft, closed in the Boston area this spring due to tough market conditions.
Large market “rentailers have been hit much harder with cable on-demand programming than rural areas,” Zaganiacz said. “Comcast advertises heavily in bigger cities.”
