DVD rental kiosks proving profitable - East Valley Tribune: East Valley Local News

DVD rental kiosks proving profitable

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Posted: Tuesday, April 21, 2009 5:52 pm | Updated: 1:54 am, Sat Oct 8, 2011.

People aren't renting movies like they used to. The weekly trip to the local video store has been replaced with renting movies online and stopping at DVD-dispensing vending machines.

People aren't renting movies like they used to.

The weekly trip to the local video store has been replaced with renting movies online and stopping at DVD-dispensing vending machines.

With a close eye on the changes, brick-and-mortar movie retailers like Blockbuster and Hollywood Video are adjusting its business models and offering more customer incentives in hopes of cornering the market.

But nailing it down isn't easy, said Jan Saxton, senior film analyst at Adams Media Research, a firm that follows the rental industry. The rental market is complex and difficult to predict.

"The fact that video rental stores have survived at all is a mystery to the guys on Wall Street, who have pronounced the business (dead on arrival) several times in the 15 years I have worked at AMR," she said.

Within the past year, the market fluctuations were so severe that Adams Research had to issue an update to its year-end report. The new version, "Video Rental 2009: Innovations Halt Long Decline, 2nd Edition," will be released later this week.

In the first edition, Adams Research underestimated the success of Redbox, a company that offers new DVD releases for $1 a day from vending machines.

The company has thrived amidst the down economy. Each Redbox machine holds about 700 DVDs. Consumers can walk up and rent a DVD from the machine using their credit cards. For each 24-hour period in which a DVD is rented, a dollar is charged to the card.

At the end of 2008, Redbox had more than 12,000 kiosks operating in front of gas stations, grocery stores and department stores throughout the country. This year, the company wants to have more than 20,000 machines up and running, said Chris Goodrich, a company spokesman.

"Our goal is to continue to expand," he said. "The more kiosks we put in, the more convenient it is for our customers."

Many Redbox rentals are impulse-buys. So the greater presence Redbox has, the greater chance there is for profitable business. There are now about 140 kiosks in the East Valley.

The business has done so well that industry giant Blockbuster began planting its own kiosks last summer. And for good reason, the kiosk segment grew by more than 100 percent last year, from $2.2 million to $4.9 million. Although kiosks are still a small share of the market - less than 6 percent - it is on the rise. Adams Research expects that kiosks will account for more than 17 percent of rentals by 2013.

This could give a big boost to Blockbuster, which received a poor assessment from auditors earlier this month. Auditors said the company is in financial straits and hinted that it might be near bankruptcy.

Hollywood Video knows what Blockbuster is going through. The company filed for Chapter 11 less than two years ago. It's now in the process of laying out a road map to rejuvenate its business. And so far, East Valley customers like what they see.

The company is unrolling a variety of plans, aiming to bring in customers and move toward greater profitability, said Clifford Torng, executive vice president and chief marketing officer of Hollywood Video's parent company, Movie Gallery.

The first move is a subscription plan called PowerPlay that locks in low rental prices for members. Under the plan, new releases go for $3, Blu-ray rentals are $4 and game rentals are $5. There are no late fees or due dates - this is a big attraction for customers, Torng said.

Overall, the plan has exceeded expectations. Hollywood has picked up around 800,000 PowerPlay memberships nationwide. By next week, the company hopes to hit 1 million.

A key to the company's success has been the East Valley, Torng said. When it comes to PowerPlay memberships, Mesa stores have averaged 6 percent more than the rest of the chain.

One of the most profitable stores in Hollywood's 3,300-store chain is at Gilbert and Baseline roads, Torng said.

"(East Valley) customers seem to have picked up on the advantages of the plan right away," he said. "They are some of the best customers Hollywood Video has."

Later this year, Hollywood plans further expansion. Torng said the company plans to offer online content in a way that's better than Netflix, the world's largest online movie rental service.

Netflix charges about $15 a month for its most popular subscription rental plans. In February, the company surpassed 10 million subscribers.

Even in the teeth of a bad economy, the company continues to outperform expectations.

Online subscriptions account for almost 27 percent of the market, but it is growing. According to Adams Research, it will account for half by 2013.

Steve Swasey, spokesman for Netflix, said the company is flourishing and well-positioned for the future.

"We're glad to be on this end of the market, rather than the brick-and-mortar end," he said.

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