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THE MORNING BUZZ: Video Games and Used DVDs Are Interesting Trends

21 Feb, 2002 By: Kurt Indvik

The recent spate of financial earnings reports from Blockbuster Video, Hollywood Video and Movie Gallery indicate some interesting trends.

First, among the three of them, we can expect about 600 new stores in 2002 worldwide. Blockbuster will open some 300 total stores in the U.S. and abroad, Hollywood plans on using the proceeds from a stock sale of 7 million new common shares to open 200 more stores and Movie Gallery looks to open 125 new stores in the rural and secondary markets it specializes in serving. Considering the economic slump across a broad spectrum of industries and regions around the world, such growth is refreshing and exciting -- especially for Hollywood Video, which has gone through a self-imposed moratorium on new store startups for more than a year.

One interesting comment from Hollywood Video president Mark Wattles is that he intends that his chain become the recognized "leader" in the sales of previously-viewed DVDs. This doesn't necessarily bode well for what we see here as a potentially eroding DVD price landscape in the coming year or two. As the release of DVD day and date becomes ubiquitous, it will be interesting to watch as specialty retailers expand their efforts to take some of the DVD sellthrough dollars from mass merchants via the previously viewed model. Already we are seeing some catalog and "B" title DVDs in mass merchant bins in the less than $10 range. How far used "A" title prices fall in the coming months will, indeed, be interesting to track, as well as how long it takes them to get from the rental shelf to the used bin.

These recent earnings reports also indicated a strong move to grow video game rentals. Blockbuster is expecting to double its revenues in games by next year and is taking the razor/blade approach to ensuring it gets there. The chain is adding PlayStation 2 players for sale in 3,000 locations and will add xBox and GameCube consoles for sale by Memorial Day. It's running a national promotion giving away 1,000 game consoles (250 each of the three platforms plus Gameboy Advance), and they just finished a 30-day "Game Pass" promotion offering discounts and loyalty points for a prepaid game rental card.

Hollywood has the game bug too, and will expand its in-store Game Crazy rental sections, which have proven to raise revenues by 35 percent in the 66 stores they are in. And Movie Gallery said this week it expects to see its video game share of total revenues rise up to about 13 percent this year.

As I have noted before in this column, surveys show that specialty retailers anticipate their video game revenues growing in 2002 on the basis of the three-platform game console race, so it will be interesting to see how the big fellows handle this opportunity. As far as the sales of used DVDs go I would very much like to hear how retailers are approaching this sector of their businesses.

How are you pricing and merchandising used DVD titles and what do you see as the future growth potential of this part of your business? Share your thoughts here.

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