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Fourth-Quarter Rental Outlook

15 Nov, 2004 By: Stephanie Prange

December is not always jolly for the rental business.

For the past few years, the fourth-quarter gift-giving season has taken a bite out of the rental market.

The first really big hit came back in December 2002, when Blockbuster warned that the sellthrough appeal of DVD had cut its earnings forecasts for the quarter in half. The stock of Blockbuster and the other two major domestic rental chains — Hollywood and Movie Gallery — all fell on the news.

The next year in December 2003 Hollywood revised its rental estimates downward, taking a stock hit. Just a few weeks earlier, Viacom chairman and CEO Sumner Redstone had told investors Blockbuster was not a “core brand,” setting the stage for Viacom washing its hands of the chain.

All of this begs the question, what happens this December? Will the rental business see another hit, or has the market reached some kind of equilibrium?

Let's just say the indications are not good. Already this quarter, Blockbuster has made a play for Hollywood. When a market is shrinking, consolidation is often a good move. In its Q3 financial call, Blockbuster telegraphed a rental shortfall, noting that the sellthrough appeal of Shrek 2, Spider-Man 2, Harry Potter and the Prisoner of Azkaban and The Bourne Supremacy would hurt rentals.

Many of the independent retailers I talk to say things are fine. Perhaps they are. Perhaps indies have been more nimble in this new market, using previously viewed titles, a broader selection and good customer service to do a better job than the chains. I'd be interested to hear from indies on their view of the rental business this fourth quarter. E-mail me at sprange@advanstar.com.

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