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THE MORNING BUZZ: Rental Dealers Learn To Sprint On Short Legs

19 Sep, 2002 By: Thomas K. Arnold

Like it or not, video rental dealers — successful video rental dealers — are no longer exclusively in the video rental business.

This point was driven home to me by several things, including e-mails from independent retailers who say they're getting a bigger and bigger chunk of their revenues from the sale of previously viewed movies. Indeed, with legs as short as they are — the hot new title typically turns freezing cold within about two or three weeks of release — more and more rental dealers are taking orders for used movies before they are even released.

There are other examples of this rental-sellthrough synergy that independent dealers are not so good at, at least not yet — chiefly, integrating new sellthrough into their business model.

For a quick lesson at how it's done, let's take a look at Blockbuster. Now, I know, a lot of independents hate Big Blue and everything it stands for, but let's face it — back in the late 1980s, when Blockbuster was first being villified, smart operators kept their mouths shut and their eyes open and learned from Blockbuster. It's no secret that Blockbuster gave birth to the notion of a video rental superstore, and countless indies that not only survived, but thrived, during the 1990s owe their blueprint to Blockbuster.

It's time to resume your studies, guys. Thursday afternoon I dropped by the local Blockbuster and was greeted by a huge sign over the front door that read, “Previously viewed movies and games — BUY 2 GET 1 FREE.” A second sign, hanging in the window, read, “Free rental with purchase.” And through the store, there were little blue signs that read, “Rent it! Like it! Buy it!” and green ones that promised, “All previously viewed DVDs, $9.99.”

Blockbuster, perhaps more than any retailer I've encountered, is doing it right. Sellthrough is commanding a bigger and bigger chunk of consumer dollars, primarily because of DVD. And while I don't necessarily agree with those who put forth that rental is a dying business, I do believe we are seeing a sea change in consumer behavior — a decided bent toward collecting movies, rather than just watching them.

Blockbuster is managing its assets the way all retailers should be. For starters, there is no excuse for a rental dealer to not sell movies. The movie-watching public has made it clear they're no longer willing to settle for a one-night stand; they want to buy, they want to own, and if their friendly neighborhood video store isn't going to play along, adios.

To encourage sales, Blockbuster is offering free rentals. It's so logical, it's a wonder every retailer isn't doing it. Particularly in this era of copy-depth, when the average price of a rental title is $25 rather than $75, retailers can afford to play with rentals as a loss leader. I know of one Blockbuster that is selling copies of Monsters, Inc. for the list price, around $25, but throwing in a dozen rentals, one per month for a year. Not only is that store getting great margins on Monsters, Inc. sales, but it's also ensuring steady foot traffic for a solid year — and at what cost? A few cents each month.

Sellthrough and rental are no longer mutually exclusive. Independent retailers have figured out half the equation — there's gold in them there used movies, especially DVDs.

Hopefully they'll soon figure out part two. After all, their competition already has.

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