Blockbusted: The Changing Game of Video Rental


The Fall of the Mom and Poppers.
In the early 1980s, opening a neighborhood video store could be a pretty smart investment. Mom and Pop outlets were popping up everywhere.

Back then, if you were looking to rent the latest VHS release, you walked into a storefront next to the dry cleaners and were probably greeted by someone who lived down the street from you.

By the mid-1980s, all that changed.

Blockbuster rolled into towns all across the USA and the Mom and Poppers were outgunned by giant, branded bigboxers, backed by deep inventories and national advertising.

The Final Reel?
Well, times have changed once again. Blockbuster announced plans in Fall 2009 to close nearly 1000 stores next year while converting another 300 to used DVD outlet stores.

That means that nearly one-fifth of all Blockbuster units open today will be either going away or morphing into a different kind of store.

Blockbuster s being outflanked by Netflix on one side and Coinstar's Red Box on the other.

Game Changer
Just as Blockbuster changed the game on Mom and Pop video stores, Netflix changed the game on Blockbuster. The idea of getting videos via snail mail is pretty low-tech but, for Netflix's 10 million subscribers, it beats making two round trips to the video store just to see the latest Will Farrell movie.

And Netflix can offer some 100,000 titles without paying a dime to have to lease and staff an outlet near you.

As for volume, Netflix claims to ship nearly 2 million DVDs daily to customers.

The firm is readying itself for the future with its "Watch Instantly" option, still in limited rollout, which will stream movies directly to your computer.

Several years ago McDonalds was looking for a way to boost traffic.
An ATM-type machine that dispensed DVD's instead of cash seemed like a good idea. Coinstar, the firm that operates all those coin conversion kiosks, soon became interested and joined the venture.

Today, Coinstar owns the whole shebang and has expanded the rollout beyond McD's locations. There are currently some 12,000 Redbox kiosks nationwide.


Redbox is the Coke vending machine of video rental.
Rent a video for a buck a night. You can even reserve your video online and when you're done you can drop it off at any Redbox location.

Like Netflix, Redbox doesn't need all the expensive square footage and staffing required for a Blockbuster outlet.

Utilizing this new business model, Redbox has reportedly captured 9% of the DVD rental market already.

Not that Redbox doesn't have its own issues. Hollywood isn't happy about how Redbox pricing is slicing into its profit margins on new releases.

Blockbuster strikes back

Why rent when you can buy..?

Most of the activity at Blockbuster today (some 85%) is DVD and videogame rental, with the balance in sales. The firm wants to change that ratio to 50/50 next year.


Brick and mortar Blockbusters that remain after the wave of store closings will, increasingly, be changing into places to buy used videos rather than rent new ones.

The rental side of the business will be shifting to other distribution channels.

To fend off Redbox, Blockbuster has partnered with ATM-maker NCR to roll out 10,000 automated movie rental kiosks by the end of 2010. They're also reaching out to TiVo and Samsung to forge alliances for digital distribution.

Many industry observers believe these moves will be too-little-too-late to save Blockbuster from being busted.

What's your take?

The Revenge of the Mom and Poppers?
The blog reported awhile back that there were still a few small local video stores out there and that some were, interestingly, renting Netflix videos to supplement their inventory and save costs.

What goes around comes around...