Blockbuster Tests Online Game Rentals27 May, 2009 By: Erik Gruenwedel
Blockbuster May 27 said it would test online video game rentals in the Cleveland area beginning June 30, expanding the service nationwide by the end of the year.
The Dallas-based No. 1 DVD rental service in February said it would enter the largely untapped $1 billion online game rental market heretofore controlled by GameFly.com, which last month filed a complaint with the United States Postal Service alleging discrimination and preferential rates and handling to Netflix and Blockbuster when dealing with DVD mailers.
Game rentals historically represent about 10-15% of total rental revenue for Blockbuster and Movie Gallery, according to Wedbush Morgan Securities in Los Angeles.
Online DVD rental pioneer Netflix does not rent video games.
Blockbuster Total Access and by-mail subscribers in the Cleveland pilot test will be able to add games for the Wii, PS2, PS3 and Xbox 360 platforms to their current online rental queue for an incremental monthly fee, which will only be charged for billing cycles in which they have actually rented games.
For the set fee, subscribers can also rent as many games as they want during the month, one game out at a time. The game rentals will count toward the total number of rentals subscribers are allowed under their online subscription plan. Additionally, Total Access subscribers will get the same in-store exchange benefits with their by-mail game rentals as they do with movies.
“This pilot allows us to test a variety of implementation details and gather invaluable key learning and consumer insights before finalizing and launching a national online game rental offering,” said Bob Barr, VP and general manager of Blockbuster.com.
Wedbush analyst Michael Pachter said GameFly is the largest online game rental provider with fewer than 1 million subscribers with monthly plans starting at $15.95 for one game out at a time.
“I don't see this becoming big business for Blockbuster,” Pachter said. “If it had potential, Netflix would have tried it sooner.”
Separately, Roth Capital Partners analyst Richard Ingrassia said that despite “quiet” improvements, including game rentals, Blockbuster Total Access lacks sufficient marketing support to allow it to capture a larger share of the potential new subscriber pool.
Blockbuster’s margins appeared stable, which he said would “likely spur investor confidence” through the end of the year. Nonetheless, the analyst lowered revenue estimates for 2009 to $4.7 billion from $5 billion and in 2010 to $4.6 billion from $5.1 billion.
Blockbuster ended the first quarter with 5,742 company-owned stores, down 64 stores from 5,806 stores at the end of fourth quarter 2008. Franchise stores declined to 1,525 stores from 1,599 stores.
Blockbuster holds its annual shareholder meeting May 28.