Rental to stay popular through 2013
Report: Subscription, kiosks to grow as traditional stores decline
By Marcy Magiera -- Video Business, 3/13/2009
MARCH 13 | Despite its image as the least hip way to consume movies, packaged video rental will hold steady at more or less $8.2 billion at least through 2013, according to Adams Media Research, as subscription options and kiosks take share from traditional rental transactions.
Although traditional transactional rentals at bricks-and-mortar stores will remain the most popular option for renters, their share of the rental market will fall to 48% by 2013, representing $4 billion, from $5.5 billion and 68% share in 2008, according to Adams’ new “Video Rental Report 2009: Innovations Halt Long Decline.”
Online subscription revenue, primarily through Netflix, will grow 41% in the same time frame, to $2.9 billion, and kiosk revenue will almost triple, to $1.2 billion. In-store subscriptions, a much smaller business, will grow 51% to $271 million.
Although the growth in online subscriptions and kiosks is bad news for specialty retailers, Adams believes traditional rental has a good chance to continue beyond 2013, for reasons including the high purchase price of Blu-ray discs, which might push consumers to rental; the diversification of stores into videogames and merchandise sales; the continuing closure of underperforming stores; and the affection U.S. consumers have for renting movies in the traditional way. That last reason “has always baffled executives in competing industries, the press and Wall Street analysts,” the Adams report says. “But here’s a simple explanation: Those are groups that generally have plenty of money, but little spare time. The vast majority of Americans have little money to spare, but plenty of time after work and on the weekend to browse the aisles at Blockbuster.”
Asked what effect a possible Blockbuster bankruptcy could have on the forecast, Adams VP Denis Cambruzzi said that if Blockbuster were to file it might emerge a stronger company. “Companies whose core business is strong, no matter how overleveraged they are, tend to emerge stronger and more focused,” he said.
The growth of kiosks and subscriptions also poses challenges for studios, as the lower per-transaction rate of these options might cannibalize higher-priced rentals, causing some specialists to exit the business. Rental transactions in general also return a much lower amount to studios than sell-through. For that reason, some studios are concerned about the growth of Redbox and its $1 per night rentals.
The kiosk operator, which brought an anti-trust suit against Universal Studios Home Entertainment over its attempt to create a vending window after the general DVD street date, last week sought to allay studio fears about sell-through cannibalization with a press release touting survey findings that showed its customers will buy about 77 million DVDs this year, with about 23 million doing so after sampling the movie as a Redbox rental.
The Adams report shows various forms of video-on-demand growing, but off a small base and not enough to seriously threaten packaged media rental (see chart).
In terms of Internet delivery, "the lack of TV connections has hindered growth," Cambruzzi said. He noted that, nevertheless, revenue for Internet VOD movies was $227 million in 2008, and is forecast for about $400 million in 2009, a healthy growth curve.
