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The Upside of Subscriptions

30 Jun, 2003 By: Stephanie Prange

While many may lament the potential move of the rental business to a subscription model similar to Netflix's, it's a very real possibility and one that may have a few upsides. Granted, a subscription model could be less profitable than the per-transaction plan, with its additional revenue stream of late fees (see our online poll this week). But the upsides are there.

First of all, the subscription model cuts down on customer dissatisfaction with late fees and promotes customer loyalty. By wiping out the late fee problem, retailers will be able to combat any possible threat from such schemes as the EZ-D disposable disc Buena Vista plans to test and they can more readily compete with online rental services like Netflix. Customers with a subscription at a particular retailer are also less likely to defect.

Secondly, it makes the local video store less of a cash-heavy business. This cuts down on loss both from outside and inside the store.

Third, and perhaps the silver lining for studios and secondary suppliers in particular, a subscription model brings back the second and third choice rentals. Witness Netflix customers who are willing to wait for the top hits in their queue. Under the recent “go home happy” rental philosophy, customers had little need for a second choice -- the less-well-known, direct-to-video or art house films. If customers are tied to a store through their subscription, they are more willing to take a chance on a film when the hit they want is out – and that could mean a shot in the arm for the independent suppliers and for secondary studio titles.

The death of the smaller title is a major concern among studio executives. In fact, Dreamworks' Kelly Sooter noted in Video Store Magazine's “Outlook 2003” roundtable in February, “We are seeing an impact on mid-tier product. Titles with a box office of $25 million to $75 million don't seem to be getting the same return on investment. Moving forward, it is a concern whether we will be able to continue to produce these kinds of movies.”

The big studios won't be the only suppliers to see a lift. Secondary and direct-to-video suppliers may be able to benefit as well. As customers find the hit they wanted checked out, they may gravitate to secondary supplier titles.

Ultimately, it will be the consumer who chooses the best rental model. But savvy retailers will be able to survive whatever the consumer selects, especially if they look at the upside and leverage it to build a better business.

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