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Can Rental Survive the Fourth Quarter Better This Year?

1 Sep, 2003 By: Stephanie Prange

One of the biggest shocks in the video business last year was Blockbuster's unexpected drop in rentals in the fourth quarter, which many, including Blockbuster, in part attributed to consumers buying instead of renting in the holiday season.

Wall Street panicked and sent the stock of the big three domestic rental chains plummeting after Blockbuster warned mid-December that rentals weren't so rosy. At the time, John Antioco attributed the shortfall to “a number of factors unique to this holiday season, including the unprecedented number of movie titles available for sale at deeply discounted prices, this year's DVD gift-giving phenomenon and a compressed holiday season which has limited consumers' leisure time.”

But were the problems with rental in the fourth quarter really “unique”? As we enter another holiday season in which the fourth quarter is packed with titles meant to take advantage of gift-giving, I'm glad I'm not in Antioco's shoes. To be sure, Blockbuster has moved into the sellthrough arena, has taken advantage of the previously-viewed sellthrough market (rentailers' ace-in-the-hole against Wal-Mart and other loss-leader chains) and is benefiting from a rental resurgence with the greater adoption of DVD. Still, the business is entering somewhat uncharted territory. With DVD penetration at 50 percent of households, will rentailers see an even bigger dropoff in the rental business, or was last Christmas season an anomaly?

I find it hard to believe that mass merchants will refrain from lowball pricing, especially in uncertain economic times. I doubt consumers will stop giving DVDs as gifts – or buying them for themselves for that matter. Perhaps the holiday rush will be less hectic this year, but I don't know if that will translate into much more leisure time for the consuming public to rent and watch videos. They'll most likely sit next to the Christmas tree and watch a DVD someone got as a gift.

This year, we'll likely find out if the fourth-quarter rental drop was truly unique or sign of things to come.

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