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THE MORNING BUZZ:Should You Integrate VHS and DVD? Check Out Blockbuster

3 Nov, 2002 By: Kurt Indvik

The phenomenal growth of DVD over the past several years has caused rentailers to remerchandise their stores in a way that truly demonstrates the split personality of the industry as it struggles to balance two significant formats in VHS and DVD. (VHS rentals, after all, have generated 66 percent of the 2002 rental business to date, or about $4.8 billion, according to Video Store Magazine market research.)

As DVD roared into the public mainstream, many, if not most, rentailers, including the big chains, aggressively built DVD sections, segregating the two formats. The point was to appeal to the growing legions of new DVD owners looking for movies to play on their shiny new machines.

But as player penetration nears 40 percent, and as DVD continues to grow and push VHS into an ever-more-subordinate profile (at least in public perception), the challenge has become how to serve VHS customers in an ever-growing DVD world.

Interestingly enough, Blockbuster seems to be trying out a concept that ends this segregation between formats by combining both DVD and VHS copies in their new release sections. (See cover story this week.)

This is not a new idea, as recent postings on the VSDA's discussion board on this very topic attest. In fact, a number of rentailers have been trying out the segregation vs. integration approach for some time, with successes and failures reported on both sides.

Integration accomplishes several things, proponents say. It serves to give the impression that the retailer has a huge new-release section; it allows DVD owners to grab a copy of the VHS version if the DVD is out; it allows a one-stop shopping experience so that you can pick up a DVD of one title for the parents while grabbing a new release in VHS for the kids to view in the upstairs VHS-only den; and it serves to expose the VHS-only customer to what's available on DVD as an incentive to become a DVD owner.

On the other hand, other rentailers believe integration can cause DVD owners to take the fewer copies of VHS available for those VHS-only customers if the title is out in DVD, thus not protecting VHS-only customers who don't have a choice. And segregationists feel it does more to build the perception that their DVD libraries have more depth and breadth. Some don't like the unorganized look of an integrated new release wall.

The fact is that whether or not integration is good for your overall rental business -- balancing the need to maximize the declining VHS business while growing DVD rentals -- is something that must be decided on an individual basis depending on your customers' needs.

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