Will the Holiday Sellthrough Season Bring a Rental Surprise?20 Oct, 2003 By: Stephanie Prange
As we enter the all-important holiday selling season, executives at the rental chains may be understandably nervous. Last year, Blockbuster sent a shock through the rental industry when it slashed its fourth-quarter earnings forecast and revealed that rentals had fallen short of expectations. Blockbuster's stock fell 30 percent Dec. 18, 2002, after the surprising announcement, pulling the other rental chains' stocks down with it.
“The strong rental transaction growth we experienced in the early fall slowed significantly beginning Thanksgiving, causing shortfalls in both revenues and gross-profit dollars,” Blockbuster chairman and CEO John Antioco said during the forecast report last December. “We believe this is largely due 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.”
While Blockbuster's stock recovered somewhat, it is taking another dip today on yet another revised outlook. Given this latest development and last year's experience, the coming holiday season must give chain executives pause. With DVD household penetration at 50 percent, might the sellthrough business eat into rentals again this year?
Certainly, Blockbuster and the other rental chains have done much to diversify their businesses, including getting into sellthrough. I also expect them to tout the gift-giving value of a previously viewed DVD. But I can't help but wonder whether consumers will deliver another surprise this holiday season, preferring to buy, give and watch gifts of the hits, rather than rent them. It seems possible the family will gather around the set to watch a DVD junior got for a gift rather than take a trip to Blockbuster this holiday season. Hopefully, the rental chains are better prepared this year.