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Calculating The Real Cost of Rentals

15 Feb, 2003 By: Joan Villa

Consumers who are weighing whether to rent, buy or watch a movie on cable or pay-per-view are at least subconsciously considering more costs than just the $3 or $4 rental price, theorizes Adams Media Research.

A new report assigning a “true cost” to video rental concludes that the real consumer price is three times the rental rate, and that inflated value may have contributed to the downturn in rental revenue that many researchers believe the industry experienced last year.

“In the past decade, as consumers have become ever more accustomed to instant gratification via cell phones, Internet access and 100-channel DBS [digital broadcast satellite] and digital cable, the perceived cost of renting a movie has increased sharply,” the report stated.

Now, time-conscious consumers must add the actual rental fee with the cost of transportation and the time it took to drive to the rental store, select a movie, pay for it, get home and put it in the DVD player or VCR, explained analyst Tom Adams.

There is also an “opportunity cost,” or the subconscious trade-off of “What else could I have done with my time?” that Adams estimates to be $22 billion in foregone wages and/or entertainment alternatives.

In addition, late fees accounting for 15 percent of industry rental revenue, or $1.6 billion out of a total $8.8 billion pie, are spent “unwillingly, and seemingly with more and more resentment as their entertainment options increase,” Adams said.

Taken together, the report concludes that $8.84 “represents a much more accurate view of the real cost of a rental transaction.”

This equation is further complicated by the reduced cost of purchasing new movies.

“There's an unconscious but real comparison consumers make in their heads of the comparative cost of renting versus purchasing,” he contended, especially now that fourth-quarter discounting put hit movies in the $14.99 price range.

“We're not even talking about a $3.50 rental versus a $24.99 purchase or even an $18 or $19 purchase, but on some of the hit titles it was a $4 versus $14 comparison,” he added. “So for at least a segment of the population, a more attractive option is owning.”

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