Video Tape Rental and Retail
SIC 7841
NAICS 532230
The global video industry includes outlets that rent and sell video tapes, DVDs (digital video discs), and related items to the general public. See also Motion Picture Production and Distribution.
The global video rental industry looked as if its best performance days were behind it by 2005. Although revenue figures for home video entertainment were on the rise and sales of DVDs had been growing far more rapidly than the declines in VHS sales, rental revenues were continuing to fall. Piracy issues, competition from video-on-demand, and the trend of consumers to buy DVDs and then trade them in, were all having a strong affect on the industry.
Beginning in 1999 with the creation of Internet-based Netflix, the video rental and retail industry joined the ranks of other industries finding success with e-commerce. By 2005, Netflix boasted 40 million DVDs and 3 million subscribers. Other upstart companies such as California-based QwikFliks hoped to cash in on the enormous and growing online DVD rental business, as did Video Island and other companies in the United Kingdom. Even brick-and-mortar players, including international behemoth Blockbuster, jumped into the world of online DVD rentals; Blockbuster launched its offering in 2004, first to the U.K. market and then to the U.S. market. Discount giant Wal-Mart also was a player in this niche, and in 2003 it surpassed Blockbuster for the first time in terms of video sales. Due to reduced overhead fees, such operations could keep a far greater selection of titles than a traditional store could even dream about.
Operations that rent and sell videos and DVDs largely include two groups: exclusive video rental shops or video specialty shops (VSS) such as Blockbuster Video and Hollywood Video and video rental departments of supermarkets and general retailers such as Target and Wal-Mart Stores Inc. Supermarkets have found the video business to be especially lucrative as a convenience offering to shoppers who would otherwise need to stop at a separate store to obtain videos. However, given the increasingly competitive market, some supermarkets and general retailers have turned to video rental chains to run their video rental services. First-run movies usually come to video about six months after their initial releases or after a six-month window, whereas they come to pay-per-view service after another one-to-three-month window and to cable movie channels after an additional three-to-five-month window. Video rental operations usually pay between US$50 and US$80 for each first-run video cassette for rental use and between US$10 and US$15 for sell-through use.
In addition to offering videos and DVDs, rental and retail shops also may provide video games and CD-ROMs for rent. Many national VSS chains have diversified in this manner, and competitive in-store services have followed this pattern in order to keep up. Larger VSS chains may rent VCRs and/or DVD players as well. Besides their rental items, these outlets also often sell a host of concessions such as candy, microwave popcorn, and soda, as well as new and used video cassettes. In addition, many in-store video outlets also sell new and used video cassettes.
Depending on the laws and rating systems of various countries, VSS chains and in-store shops may cater to specific crowds. In the United States, some VSS operations court the adult crowd by providing an X-rated section, although many larger companies such as Blockbuster and Hollywood Entertainment have averted potential problems by eliminating adult sections or not introducing them in the first place. Small, independent U.S. video shops often concentrate on or exclusively offer art and foreign films. Furthermore, a number of in-store shops only target the family crowd, not wanting to offend the sensibilities of shoppers who might object to R-rated fare. However, in countries such as Germany, video specialty stores offer the whole gamut of movies from pornography to children's movies.
A number of movie video distributors provide videos to rental and retail stores. While many stores rely on several distributors, some video operations began to consolidate their accounts in the late 1990s. For example, U.S.-based Kroger Co. announced in 1997 that it would pare its distributors down to just one and began taking bids to see which distributor would win its contract. In addition, Blockbuster bypassed distributors altogether and began to buy directly from movie studios in 1996.
In 2000, the studios and major video chains adopted what is known as the rental revenue-sharing business model. The goal was to get customers to move from VHS to DVD. Prior to the agreement, video stores were paying an average of US$40 per video to purchase videos which they could then rent out to recoup their costs. Under the new agreement, the major chains were given the movies on a consignment basis, with the two sharing any rental revenue received. The studios received 60 percent of the revenues, and the video chains received the remaining 40 percent. Eventually, the used videos were sold for between US$5 and US$15 and the revenues split evenly between studio and chain. Once consumers started accepting DVD over VHS, the studios began to decrease the number of videos entered into the revenue-sharing scheme, and began to offer discounts to wholesalers and retailers to encourage consumers to purchase DVDs.
In 2002, however, independent video retailers filed lawsuits against Blockbuster and other video giants claiming that the revenue-sharing model used by Blockbuster and the major studios constituted unfair competition, a charge Blockbuster's attorneys denied. Undeniably, however, Blockbuster's ability to purchase huge quantities of new releases gave the chain a leverage few rivals could compete with since a tape that costs Blockbuster US$10 could cost a rival six times that amount because of Blockbuster's agreements to share revenues with studios. In addition to the bankruptcies of numerous small stores, a small number of national chains have gone bankrupt or have seen their demise predicted by industry analysts.
The Video Software Dealers Association (VSDA) serves the U.S. video rental industry. With headquarters in Encino, California, the VSDA promotes home video rental through conventions, newsletters, education, and industry reports. The VSDA also provides members with screening videos and retailing handbooks to help them market new releases and remain competitive. The VSDA's accomplishments include lobbying for and helping bring about the adoption of state and federal antipiracy laws, as well as the maintenance of competitive pay-per-view windows. The International Video Federation (IVF) serves the European industry, providing support for video rental and retail operations and statistics on the industry.
Outside of the United States, the video industry operates in an environment that includes some similarities to the U.S. system, as well as some important and impactful differences. Similar is the fact that movies are released using a sequential distribution plan for economies of scale. However, in some countries and trading blocs, home video retailers are required to obtain a license to purchase then rent videos. Studios often charge home video retailers more for a video that is to be used for rental purposes then they do for one that is going to be sold to the consumer. This two-tiered pricing has increased the competition faced by video rental stores in such markets as the United Kingdom, Ireland, Spain, and Italy, who must compete with mass merchandisers.
The video cassette recorder (VCR) appeared on the market in 1975, as the first step in the development of the video rental and retail industry. New entertainment services also emerged around this time including cable television that fueled the popularity and usefulness of the VCR, because the VCR allowed users to tape TV movies and television shows. Shortly after the introduction of the VCR, movie studios released video cassettes of classic movies to add to their...
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