The Business Blog at Intuitive.com

Dave Taylor has been involved with the Internet since 1980 and is widely recognized as an expert on both technical and business issues. He has been published over a thousand times, launched four Internet-related startup companies, has written twenty business and technical books and holds both an MBA and MS Ed. Dave maintains four weblogs: The Business Blog at Intuitive.com, Ask Dave Taylor, Dave On Film, and Attachment Parenting Blog. Dave is an award-winning speaker, sought after conference and workshop participant and frequent guest on radio and podcast programs.

While local video rental stores fight over inventory, the industry moves on...

Here in Boulder, Colorado, there's an interesting business battle playing out both in the DVD players of residents -- many of whom are students who attend The University of Colorado at Boulder -- and in the pages of the local newspaper.

The latest volley in the battle between local video rental shop Video Station and the newly opened branch of national chain Hollywood Video came today in our local paper The Daily Camera. In an article entitled Video Wars: Video Station girds for battle against Hollywood Video's "film library" the basic dispute is laid bare...

Prior to Hollywood Video opening up an outlet in town, Boulder was characterized by slowly failing video rental stores. Blockbuster, for example, shut down one of its two stores in town, citing the cost of staying open versus the per-store demand, and even the local movie theaters have had a tough time competing, most of them slowly spiraling towards bankruptcy.

Throughout this time, however, Video Station has remained a popular local choice for video rentals with its unusually large selection of foreign and non-mainstream videos and DVDs. Indeed, Video Station claims to have 55,000 different videos in its stock, an impressive number by any measure.

So when Hollywood Video opened its new store with a banner proudly proclaiming "Boulder's Largest Selection of Videos: 45,000 in stock" it's understandable that Video Station got a bit upset.

Since then, however, Hollywood's designated the Boulder store as one of its experimental film library locations and sent sufficient additional titles to the store so that it now counts over 58,000 titles in stock, indeed making it the largest inventory in town.

I find it interesting that the battle's being played out in the local media, suggesting that it's yet another retread of the Biblical David and Goliath battle that retailers face every day when they compete with larger conglomerates (the most common of which is the Walmart Syndrome, of course). But unlike the wonderful and inspiring story from the Bible, there's a significant missing element in this epic battle: does anyone really care?

Consider what happens a year after the heated debates surrounding the approval of a Walmart building permit. The no-longer-controversial stores are always busy with locals, those same locals who decried the invasion of the big box store, the same locals who swore that they'd keep all their business at the local shops and would never be caught dead at Walmart. What happens? Pragmatic reality sets in and people realize that it's one thing to say "no" and another to cast a vote with their wallet each and every time they go shopping. People hate Walmart, but darn it, they do have good prices.

In a similar manner, Video Station and Hollywood Video are fighting a turf war here in Boulder, but Blockbuster, Netflix and even Walmart already demonstrate that the battle for the future of video rentals isn't about storefronts and retail at all, but rentals through the mail.

And they're all in grave danger of obsolescence in the next few years as the major movie studios figure out how to tie a workable digital rights management system into online on-demand video rentals. If you could search online through a database of 75,000-200,000 movies, click a button and for just a few dollars have it automatically downloaded to your Digital Video Recorder or TiVO for 14 days, why would you ever leave your house to visit a rental store or both waiting a few days for your latest DVD to arrive in the mail?

If you're fighting a turf war in your market, it's critical to ensure that the rest of the battle hasn't moved to another front entirely while you're busy kicking up more dust.

Otherwise you'll win the battle but lose the war.

Posted by Dave Taylor at August 29, 2005 3:16 PM

Comments

I'm glad i came upon your website, I'm a middle-aged mother of 6 who has the opportunity of buying a locally run video store. I've been searching for some info on future growth potential of a locally run video store. The area I'm looking at is about a 20 minute drive from my home in a small PA town. This wouldn't be my only source of income but is definitely a big risk with not having any collateral or resources to fall back on. Can you give me any more advice on this?
Thanks,
Barb Hogan

Posted by: Barbara Hogan on October 19, 2005 6:26 PM

I don't have any industry trend analysis or market share numbers in front of me, but if you read the Annual Reports of both Blockbuster and Hollywood Video, you'll see that the video rental business is characterized more by stores closing than by new stores opening. I would do quite a bit more research before I invested, if I were you. Good luck!

Posted by: Dave Taylor on October 19, 2005 7:32 PM

What a thorough and well-read posting. Thanks for your insight.

Posted by: Shakti on September 27, 2006 10:55 AM

Wow, I had no idea that HV was trying to take on VS. I mean, I saw the store open, but had no clue they were trying to compete with the selection at VS. I recently asked a VS employee how they were intending on competing with Netflix et al, and the response was along the lines of "customer service" and personal touch. Of course, no forethought or commitment required for the local store, which is a real plus for me currently.However, downloaded video on-demand will rip this business apart in no time, and it looks like we'll see this in early 2008. Video rental stores will be a real niche market that will require a large population to sustain.

FYI, I already use on-demand movies over the internet (Movielink), but the titles are very limited, you have 24hrs to view it once begun, and they need to install their movie management software on your pc.

Looking at Netflix's jobs postings a month ago, it looks like they are going to make some piece of hardware that will kept in your house and used to store the movies you download. I'd imagine this is how they intend to keep a real DRM lock on their content so as to get the OK from UA, Sony etc.

Posted by: R. Base on December 1, 2006 5:59 PM

I own and operate a small chain of privately owned video rental stores in Indiana. I don't know about Blockbuster, but we're doing alright. We currently have 8 stores, and for the last 3 years, our profits per quarter have gone up by at least 2%.

We do have several differences though, compared to the large chains:
1. We don't open stores in competition heavy markets. It's no surprise that the stores are going out of business, when there is one on every other street corner. It's like opening 10 Walmart's in one 100,000 pop town... There's only so much to go around. Our stores are in smaller towns that are undeserved or have no other video stores.

Many people would think that starting a business in a small town is a bad move, but you would be surprised the amount of people in a 4,000 pop town that wants to rent DVDs every night.

2. We're not in competition with Netflix or Redbox. Most of these smaller communities have never heard of Netflix, and those that have either don't trust online transactions, don't have a computer, don't have the internet or have too slow of a net connection to bother.

3. Selection. Our stores not only carry DVD's, but also Bluray and HD-DVD titles, Games for XBox, XBox 360, PS2, PS3, PSP, Wii and Gamecube. We also have a large stock of PS One and N64 titles, which is still popular in smaller towns. We also Rent gaming systems, currently PS One's, Ps 2 and Gamecube's. Gaming systems are rented on a rent-to-own system. PSP Rentals coming soon.

4. Price. New Release DVD's are $2.25 for 5 days, $3.00 for 10 days. Old DVD's are $1.25 for 5 days, $1.75 for 10 days. Late fee's are $1.00 per disc, per day. Game systems are rent-to-own at $14.95 per week, up to the payoff point (usually 3x MSRP). HD DVD and Bluray for got $3.75 for 5 days. Adult DVD's are $3.75 for 3 days, or $5.00 for 5 days. DVD players are available for rent-to-own at $7.95 per week.

5. In-Store Rental Plan. We offer plans which currently make up 62% of our rental income. Our most famous plan is 3 at-a-time, which allows you to have up to 3 DVD's out at any time for $19.95 per month, with no late fee's. Second most popular plan is the 2 Games-at-a-time plan, which allows up to 2 games out for $19.95 per month, no late fee's. Bluray and HD-DVD are still not available on a plan, but out titles in this area are still limited. Our up and coming plan which we launched last month allows you to have out one adult DVD at a time, at a cost of $19.95 per month, or 2 at a time for $24.95 per month.

6. # of titles. Our largest store has 40,000 DVD's and 2,200 games. Smallest store has 11,000 DVD's and 800 games. Most stores carry around 150-200 HD DVD and Bluray titles. All stores carry adult DVD's as well, usually 400 - 800 of them.

7. Store Layout, Additional Items, and movie types: We carry not only mainstream new releases, but old releases as well as a large amount of independent and foreign films, TV series and a large family / kids section. Several of our larger stores sell frozen pizza, TV dinners, and several types of drinks, as well as popcorn and candy. 3 of our stores even sell "Pizza to Go", you can order a pizza over the phone, drive to store and pick it up fresh, and get it at a great price with DVD or game rental (8" - $7.95, 12" - $9.95 and 14" - $12.95. Without game rental, add $3.00 per pizza.

So to us, our business has gone up since we started, and we have 5 more stores to open in 2009. This is because we are not in competition with the Walmarts of the rental world, and we serve undeserved communities.

To add a bit of info, our largest store does around $35,000 per month in total income, while our smaller ones still pull in around $12 - $15k per month. I don't see us going out of business anytime soon!

PS) We also sell new and previously viewed movies, below your average retail price, even cheaper than the Walmarts of the world. For example, The last Harry Potter was available from us at $14.95 new, a local Walmart for $19.95 new.

Landon Parks,
President & CEO,
Firestorm Video & Game Rental

Posted by: Landon on October 28, 2008 3:22 AM

Before you leave a comment, a tip: If you're interested in blogging, you should sign up for my Blogsmart News so you can stay up to date on the latest insider tips and ideas for your Internet business and marketing efforts. Sign up right now and you'll get a free copy of my "Insider's Guide to Blogging" ebook too!