Indies use new tactics to combat Web, kiosks

Stores tout larger selection, previously viewed sales

By Susanne Ault -- Video Business, 8/3/2007

AUG. 3 | Independent rental stores are trying new tactics including lower prices, longer rental periods and more DVDs stocked for sale in a stepped-up effort to battle the 24/7 convenience of Blockbuster Total Access and the $1 pricing of Redbox and other kiosks.

Various Total Entertainment Centers and other Video Buyers Group members are taking a direct approach, offering $1 a night rentals on a temporary basis to combat kiosks.

“They’ll paint a little red wall in their store and offer a lot of the same films as a nearby Redbox,” explains VBG president Ted Engen. “They’ll set the price for $1 at least during street week.”

Engen believes that traditional video stores’ greatest strength is that their selection normally trumps the average 70-title Redbox by hundreds of movies or more.

Yet, “what is causing a lot of competition for the industry is Blockbuster Total Access,” adds Engen. “You are pulling a whole segment of the [traditional] marketplace online, because there is that option where they can take back DVDs to the store.”

Since launching in 2006, Redbox has rapidly become a national rental force, numbering more than 4,000 locations through June. Looking at certain markets it penetrated last year—Denver, Salt Lake City, Baltimore, Houston, St. Louis and Minneapolis—Redbox commanded a 4.3% share of DVD revenue in third-quarter 2006, estimates NPD. Those same markets jumped to an 8.2% share for Redbox during the second quarter of 2007. NPD started tracking Redbox last year.

The company declined to break out those retailers that lost share as Redbox gained, but NPD believes bricks-and-mortar in general in those cities did decline.

“It’s becoming a real tough market,” said Larry Voss, owner of Wisconsin’s Celebrity Video and Tan. “Anything that comes up like this can take away from your bottom line.”

In the past year, Voss has opted to extend his $2.50 per night to $2.50 for five nights on catalog titles in order to ramp up his offerings’ value against new competition.

Another store has lowered pricing from $3 to $2 on nightly rentals, partly in response to Redbox moving into the neighborhood.

“It’s too early to know the long-term results,” said the store’s owner. “Before we did this, rental revenue was down because of Total Access. And we didn’t want to see things going down further when Redbox entered the market. I do think we are doing better than we would have if we hadn’t made the changes.”

Another way stores are competing is with merchandise for sale.

At Total Entertainment, stores have been converting virtually all titles to be available for rent or sale as previously viewed. The chain is not beholden to many studio revenue-sharing deals, so it is able to immediately offer new release rentals as previously viewed sell-through items. Being able to present that choice to customers is considered a nice leg up over Redbox and others that focus mostly on rental business.

“Of the 81 Total Entertainments, 36 are doing all previously viewed,” said Engen. “We’re pretty confident that a large segment of the [1,800-member] VBG base will be switching over in the next 12 months. This gives customers options. If consumers are looking for value, here they can buy or rent.”

About 20% of the 350-member National Entertainment Buying Group similarly has branded their stores as ‘Rent me, or Buy me,’ adds NEBG president Todd Zaganiacz. Video Zone, which Zaganiacz owns, mostly emphasizes the dual option on catalog titles.

“I think a lot of it comes down to variety,” said Zaganiacz. “We have breadth of product. We try to offer a fair, competitive price. Redbox can stock 70 titles. They are never going to be able to match the true bricks-and-mortar experience for the customer.”