As the nation's video retailers prepare for their annual convention next week in Las Vegas, the video rental industry is rebounding from its doldrums.
Still, some retailers are grumbling about how it's happening.
Consumer spending on video rentals for the year is up a solid 5% from this time in 1997, according to some industry estimates. That means rental spending is on track to exceed $9 billion this year.
For the first quarter, industry bellwether Blockbuster Video, by far the nation's largest rental chain, posted a 13% year-over-year gain in video revenue to $930 million. Blockbuster says it expects similar gains in the second quarter.
The comeback follows a period plagued with problems. The market had become saturated with stores in some areas, hit titles were in short supply, and Blockbuster was struggling with strategic and management problems. Also, studios have been selling more movies to consumers rather than pushing them as rental titles.
Jeffrey Eves, president of the Video Software Dealers Assn., said its service shows year-to-date rental spending is up 4.8% over last year. "If the current trends hold through the balance of the year, not only are we looking at a good year for home video, but we are also more than making up for the decline the industry experienced in 1997," he said.
But some video retailers argue that the industry is too dependent on big titles. They say the revenue gains, which are largely due to a studio-led drive to pump more copies of new hits into stores, are coming at the potential expense of video retailing's future.
"The inherent advantage of video stores has always been selection and variety," said Mark Vrieling, owner of Rain City Video, a three-store chain in Seattle. 'By devoting so much store space to a handful of hits, we are voluntarily relinquishing one of our greatest assets and advantages. If we bring this down to a 30- or 40-title business, we're no better than pay-per-view. As a matter of fact, we're worse, because you can watch a hit movie on pay-per-view just by turning on the TV. With us, you have to make two trips to the video store to pick it up and to bring it back."
Analyst Tom Adams of Adams Media Research in Carmel Valley, Calif., can see both sides of the argument over the push for hits.
"It's not good for the industry if you totally neglect the rest of the selection, which is what people, despite the fact that they harp on the hits, have really come to expect from a video store," Adams said. "That, along with [early] release windows, has always been the major advantage home video has had over electronic movie delivery systems like pay-per-view. But on the other hand, consumers have been telling us they want more copies of the hits in stores."
A few years ago, some were predicting that advances in technology would make video stores obsolete because consumers would soon be calling up movies electronically at home via extensive pay-per-view options. Those predictions proved premature.
Now executives with the studios' home video divisions are buoyant about the latest numbers. "I think things are moving along great. It's a very dynamic business," said Pat Wyatt, president of 20th Century Fox Consumer Products.
Benjamin Feingold, president of Columbia TriStar Home Video, concedes that much of the credit for the growth in rental comes from retailers' bulking up on the hits, often to the point of guaranteeing their availability.
Retailers buy extra videos through a variety of studio "copy-depth" initiatives. Under the so-called bonus-goods programs available from Warner Home Video, Columbia TriStar Home Video and most other major studios, retailers that buy a certain number of new releases get a substantial number of additional copies free.
Some video suppliers have also struck revenue-sharing agreements with big chains, notably Blockbuster. Retailers pay less than $10 for a video they'd normally buy for $70, then share the rental proceeds with the studio.
Smaller dealers can also participate in revenue-sharing through middlemen like Rentrak Corp., but the terms are less favorable. In both cases, the goal is to get more copies of hit videos in stores, which appears to be working.
"The rental business is up principally because there are more copies of the big titles at retail," Feingold said. "It's driving people back to stores, and that's a good thing." Yet he maintains that this is just a first step.
"I think within the next six months, retailers will go back to more of a balance and bring in a broader selection of titles," he said. "They're using the 'A' titles . . . to drive people into the stores, to get people who have stopped renting to come back. It's almost like a marketing phase."