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TK's MORNING BUZZ: For Many Video Retailers, the 4th Quarter Will Decide Whether They Stay In Business or Close Shop

24 Oct, 2000 By: Thomas K. Arnold

The latest wire report about amazon.com's continued bleeding states, in a nutshell, that while losses for the just-finished third quarter have widened, all eyes are on the critical fourth quarter.

That pretty much sums up what many video retailers are saying about their own businesses. Rentals were down over the summer, but for many the fourth quarter will be the deciding factor in whether they stay in business or close up shop.

For video dealers relying on VHS rentals alone, the fourth quarter promises to be a bummer. Despite a few big titles, we're seeing most of the summer theatrical blockbusters priced for sellthrough. Whether video specialty retailers will be able to turn these titles into hot rental commodities remains to be seen, particularly since practically all the big titles, rental as well as sellthrough, will be available day-and-date on DVD--and the mass merchants and consumer electronics chains like Best Buy and Circuit City will be pushing the hell out of them.

Unfortunately, nothing short of a boffo fourth quarter will have much of a positive effect on video rental stores. They've been hurting for the last few years, and even if rental revenue is on a par with last year, it won't be enough to make up for the ground they've lost so far this year. Keep in mind that open-to-buy dollars are predicated on past revenues, and the fact is that many retailers aren't buying as much product as they perhaps should simply because they don't have the money.

A year ago, retailers bemoaning the sad state of the business were busy adjusting to a lower standard of living. The rental store that used to generate $120,000 in annual revenue is now making maybe $90,000 or $100,000, and once you subtract overhead and other expenses, the balance isn't enough for the owners to maintain a decent standard of living.

Stay tuned to The Hive later today for a report on Blockbuster's latest financials and a conference call with analysts.

As a result, you already see retailers leaving the business to sell cars, hawk pizza, and pursue various other jobs that might not give them the same ego-boost as operating their own businesses, but that certainly provide them and their families with a little more money to live on.

My prediction is that the fourth quarter, rental wise, will be flat. And that means another accelerated shakeout that will leave the video rental community with a smaller population than it's had in years.

Comments? Contact TK directly at:TKArnold@aol.com

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