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Games a Growing Market for Video Specialists

29 Apr, 2004 By: Melinda Saccone

Game rentals have always added to the bottom line, but as movie rental transactions have slowed, they have become an increasingly important source of revenue for rentailers.

Although the game market is primarily a sellthrough channel — with software sales, according to the NPD Group, registering between $6 billion and $7 billion annually for the past five years — leading video specialists are tapping into a revenue stream from the growing number of consumers who would rather rent than buy.

While game rentals churn out less than 10 percent of what software sales do in revenue, rentals are on the rise. With the average cost of a new game running between $40 and $50, many consumers are opting to try before they buy. This has fueled a 47.3 percent growth in game rentals in the past five years, according to Video Store Magazine Market Research estimates.

Last year, consumers spent $776 million renting games — almost a 50 percent increase from the $527 million they spent renting games in 1999.

The lion's share of that revenue — or 72.8 percent — was transacted in one of the top 50 video specialty outlets in 2003, according to Video Store Magazine Market Research. By comparison, less than half (44 percent) of all game rentals were generated in the top 50 video specialty outlets five years ago.

Game rental revenue has become an important secondary revenue stream for the top 50 video specialists, accounting for 6.5 percent of these industry power players' gross revenue in 2003.

Blockbuster Inc. led the industry with 38.7 percent of all game rentals transacted in one of its 5,670 domestic outlets last year. According to Video Store Magazine Market Research estimates, Blockbuster generated nearly $300 million in game rental revenue (exclusive of previously viewed game sales) in 2003.

Hollywood Entertainment Corp., the nation's No. 2 video specialist, generated an estimated $119 million in game rental revenue in 2003, giving it a 15.3 percent rental market share. Hollywood's revenue does not include game sales revenue from the nearly 600 Game Crazy outlets in operation at the end of 2003, which only buy, sell and trade games.

Rounding out the top five game rental players were Movie Gallery (No. 3, 6.6 percent), Family Video (No. 4, 4.5 percent) and Video Warehouse with less than 1 percent of the market.

More than half of the top 50 video specialists plan to increase the number of games they carry for rent in 2004, while not a single retailer planned to decrease game rental inventory. While new game software sales remain a relatively small portion of the top 50 video specialists' revenue (.4 percent), 44 percent plan to increase the number of games they carry for sale in 2004.

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