THE MORNING BUZZ: Video Game Rental Opportunity Will Continue to Grow25 Apr, 2002 By: Kurt Indvik
With some 400 to 500 video game titles coming out a year across three competing game platforms, it would seem to me that the rental model opportunity (and previously viewed sales) is only going to get better. The issue is, are the game manufacturers interested in going along for the ride?
This week's quarterly financial reports from Blockbuster and Hollywood Entertainment both highlighted the video game business as being an integral part of their strategies for growth.
The 66 Hollywood stores with a 1000 square-foot Game Crazy store-within-a-store section average $400,000 more in revenues per year than Hollywood stores without a Game Crazy. It's no wonder the chain plans to add another 100 to 200 Game Crazy sections in the next year, according to CEO Mark Wattles.
“In my opinion, games could become an even bigger benefit to our industry than DVD has been,” he said. That's quite a statement.
Blockbuster this week also highlighted games as a major growth area, noting that it would be remerchandising its game products into platform clusters (PlayStation, Xbox, GameCube, et al) combining all sales, rental, hardware and accessories. It also said it was going to extend its rental subscription concept to video games as it is for video, whereby for $59.90 gamers can check out and play up to three video games for an extended period of time without paying late fees, a la the NetFlix model.
In talking to game industry analysts, it seems that suppliers have an ambivalent attitude to the concept of rental. They grudgingly recognize that trials do, ultimately, drive sales. There is no indication that rentals degrade sellthrough, at least on hit product, since every strong rental title has also been a strong seller. However, there does seem to be concern that on less than stellar titles, rental, in fact, may replace sellthrough, since obviously gamers would try a game and, having played it once, go on to something else. But price also has a factor to play here. With most every title, hit or not, coming out at $49.99, this may explain some of the concern on second-tier games. There is some movement toward a $39.99 price point this year. I can sense this palpable tension building between what seems to be a growing opportunity for video game rental (and previously played sellthrough) and the lack of interest by the video game manufacturers to want to recognize or support it. Seems like the early 80s in home video all over again, doesn't it?
On the specialty video retail side, the main challenge seems to be managing inventory. What games do you get and how deep do you go? If it's just a hits business for you now, then in Xbox, for instance, it's arguable you'd have Halo, Project Gotham Racing and maybe Rallisports Challenge and that would pretty much be it. That's not much of an Xbox section, so then you go deeper, but into less predictable waters. That means either a knowledgeable staffer to help you with the buying, or a good distributor. The home video and video game industries have not been kind to distribution in the past several years, so your options there are limited.
Specialty stores also have a real opportunity in the “previously-played” arena, with most new product retailing at $49.95. If rentailers can turn enough rentals on a product quickly enough before moving it into the used sales rack, seems to me gamers' threshold on buying second-tier product is lowered.
All in all, this a major category to continue to build and one that fits fairly neatly into the current home video rental business.