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The Price of Consolidation

23 Jan, 2005 By: Kurt Indvik

We have all known for some years that the total number of video stores declined precipitously in the mid to late 90's and into the new millennium. What the data we have now from the Census Bureau shows is that, not surprisingly, it came largely at the expense of the mom & pop operator.

As senior editor Holly J. Wagner details in her cover article in this week's Home Media Retailing, between 1992 and 2002, according to the Census Bureau, while the total video stores dropped about 30 percent, mom and pop operations (“nonemployers” who operate a video store) dropped almost 60 percent. In 1992 there were 11,735 mom & pops. By 2002 that number was down to 4,838.

This consolidation also naturally tipped the balance of video store fronts toward the national public chains in a big way, who grew by opening new locations and buying out other retailers as mom and pops faded away as the business grew more competitive and sophisticated.

It's interesting to also note that in the five years from DVD's introduction in 1997 to 2002, the total number of video stores shrank some 22 percent, dropping from 30,359 to 23,527, according to the Census Bureau. Certainly the introduction of DVD increasingly improved the ROI for rentailers as the DVD player landed in more U.S. households. But the early use of revenue sharing programs by Blockbuster and others, swamping small competitors with copy depth, proved far too damaging to many neighborhood video store owners who could not match the chains copy for copy. So that by 2002, the top four chains generated 67 percent of the total industry revenue.

But three years later even as some of the chains struggle to find their future, anecdotal evidence suggests that not only has the consolidation of the small retailer abated, but that, in fact, DVD has attracted new serious entrepreneurs back into home video. I would not be surprised to find that that independents have held on to at least 35 percent or more of the rental market. That could be 35 percent of a roughly $10 billion business (including PVT sales) in 2004. Not too shabby.

What remains to be seen is if the rental market they have fought so strongly to hang on to has found its equilibrium in relation to sellthrough and, perhaps, enjoys a lift in the coming years as sellthrough growth begins to plateau and rentals (maybe) rise as buy rates decline.

Meanwhile, however, video stores, from the national chains down to the small operators, continue to explore all possible options to help them survive and flourish in a landscape that has, since 1997, changed dramatically for them.

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