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Waiting for the Plunge

27 Jul, 2004 By: Holly J. Wagner

If the video rental marketplace is your ocean, you'd better take a deep breath and hold your nose. Because enemy subs are prowling your waters, and your only hope may be to hide in the icy, low-price fjords.

Low pricing has been a double-edged sword from the outset. It leveled the playing field for a lot of indies who otherwise might have been driven out of business. Many of them have kept afloat on PVT selloff. But they also found they had to sell off titles a lot sooner to compete against players like Wal-Mart that were little threat in a rental-dominated marketplace.

If the map for your business has been a la carte rentals, the big players are changing the coordinates. Navigating the pricing waters over the next year is sure to be a treacherous venture that not all will survive.

Our online poll this week indicates that just a little more than 12 percent of respondents either have subscription programs or plan to offer them in the next year. By my estimation, the 79.85 percent who say they have already dismissed the notion of in-store subscriptions are going to get a rude shock by this time next year at the latest.

Netflix was a curiosity when it first made the scene. It was an upstart that most observers gave little chance. But it turned out to be a bigger change agent than anyone suspected. Now, with 2.1 million subscribers in a universe that Blockbuster CEO John Antioco last week defined as 4 million possible subscribers, the industry is taking the company and its model as seriously as Wall Street analysts have.

Blockbuster has no choice but to offer online rentals, and soon smaller players won't have any choice, either. Because not only is Big Blue doing that, but Antioco said the company has been testing pricing and terms models.

That means not only are subs prowling your waters, but they are packing a big torpedo: lower a la carte pricing. And it doesn't end there. Would Blockbuster be tinkering with its pricing if it wasn't feeling the heat? I doubt it.

There's another engine in the price war: vending machines. Sure, a lot of you think I've lost my mind. You're saying vending machines will never make a dent. But with McDonald's testing $1-a-night rentals and some supermarkets testing machines with prices as low as 69 cents for a one-night rental, it won't be long before others are forced to bring their prices down, too.

I'm guessing that a lot of indies who have done OK on a la carte rentals for a long while will have to rethink their battle strategies or risk one of the bigger guns sinking them.

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