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It's the Economy, Stupid

7 Sep, 2005 By: Holly J. Wagner

In all this talk about the "Great Box Office Slump of '05" and the leveling off of DVD sales, a lot of fingers have been pointed. But I think almost everyone is missing the big picture.

Studios blame exhibitors for low-quality theatrical experiences; exhibitors and retail chains blame the quality of movies; analysts blame video games and the Internet; and the Motion Picture Association of America blames downloading.

And then Hurricane Katrina hit. She'll be blamed for plenty. But I also think the hurricane just magnified problems that have already been brewing under the surface. It's amazing to me that nobody has yet looked at the whole pullback in the context of the larger national economy.

Sure, the population as a whole has more wealth. But most of it is on paper, and it's predicated on real estate “values” that have gone completely out of control in some areas. Lots of people stretched to get those loans or got them on very risky terms, or both. Their money is tied up in their homes, and in many places people are spending more than ever for mortgages and rent. And you're not taking a shovelful of dirt as payment for a DVD, now are you?

Consumer debt is up, with the average household credit card bill hovering around $9,300 (according to CNN/Money.com), and the national household savings rate is pathetic. The federal Commerce Department just released figures showing personal savings falling to a minus-0.6 percent rate, the lowest level since the government began keeping such records in 1959.

At least one indie rentailer has been complaining on the boards lately that high gas prices have forced his customers to rent less. Their money is going into the gas tank. U.S. Department of Energy figures show the cost of a gallon of gas was up 40 percent from a year ago, before Katrina. Personally, I know the difference between a fillup last year at this time and a fillup this year is about the cost of a Wal-Mart DVD on street date. That means it is for a lot of other people, too, and that's at least a couple of rentals each.

So far it has been consumer spending that has kept this economy afloat, and retail predictions for this holiday season are already projecting that shoppers will only respond to discounts. Now, shoppers in much of the South will only respond to necessity, and other people and regions will follow as gas prices and other necessity expenses climb — don't forget those gas prices are going to affect delivery and other costs that will get passed on to consumers.

Bad time for a new format rollout, by the way.

The online rental services will benefit most from this. People will buy less, rent more and look for the most economical way to do it. That's going to be the service that I pay a flat fee for unlimited rentals and save myself the rental and the return trip to save on gas. It also offers selection I can't get on big screens or in stores.

The other economical way to go is trading in and out, buying and reselling. Or the barter services like Peerflix and Barterbee. This is their shot; we'll see how they handle it.

How will the rest of the industry handle it?

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