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THE MORNING BUZZ: New Business Development More Important Than Ever

6 Oct, 2002 By: Kurt Indvik

At this week's East Coast Video Show in Atlantic City, the focus will be on managing the core video retailing business efficiently and expanding into new ancillary business as a hedge against the uncertain rental future in a growing sellthrough world.

The Delaware Valley Chapter of the VSDA will host a half-day seminar titled “More Than Just Video.” Attendees will explore a full range of possibilities to add a significant second line of business to their core video rental business.

Interestingly enough, one of the featured presenters at the seminar is eBay, which has a very high profile at this year's show. In a nutshell, eBay is offering its significant e-commerce platform as a way to help specialty retailers participate more fully in the sellthrough business (both with used and new video). At first blush it seems an elegant idea. Rentailers can use the Web to compete in the sellthrough arena, I would guess most effectively in the previously viewed market. It's a great way to extend their businesses in a real transactional Web environment at little cost.

Another ancillary business is the newer iterations of video vending machines being exhibited at this show. With DVD sellthrough pricing (and even lower used pricing), rentailers could use these machines to extend their sellthrough businesses to local colleges and other sensible locations for some revenue-sharing or a fee-based deal with the host location.

Yours truly is moderating a panel on video games as a growth business. It's long been a moderate staple of many speciality retailers -- Video Store Magazine market research puts the percentage of speciality retailers participating in video game rentals and sales at between 65 percent and 70 percent. The VSM Top 100 average pegs video game revenue as accounting for about 7 percent of total rentailer revenue. And it's a business that's on the rise, as more than 50 percent of the Top 100 said they plan on increasing their purchases of video games to rent in 2002. Add to this the growing realization by video game companies that rentals drive sales (Ziff Davis research noted 86 percent of those who consider themselves to be “core gamers” say they have purchased a game after renting it), and the growing prospects for possible revenue-sharing deals for games with suppliers -- a plan Rentrak has promised for the near future -- makes this a potentially very viable and significant business model for speciality retailers.

Rentailers must maximize margins on DVD rentals (even as VHS continues to plummet), extend their sellthrough business and aggressively develop another complementary business to thrive in this changing industry.

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