IVRs Saying No to Subs24 Nov, 2004 By: Erik Gruenwedel
Independent video retailers (IVRs) are in no hurry to jump on the subscription rental bandwagon.
Recent online rental sub price slashing by Wal-Mart, Blockbuster and Netflix coupled with a cautionary “White Paper” on the subject from the Video Software Dealers Association (VSDA) have many IVRs thinking twice about subscription services.
A Video Store Magazine survey found overwhelming disinterest in subscription programs among rentailers, although about 30 percent have some sort of subscription service, indicating the concept is not considered totally without merit.
“We decided at this moment not to do it,” said Ross Flint, president of Video Station Superstore, in Taylor, Texas. “It's just not profitable. We have looked at the [VSDA] white papers and decided it wasn't something for us. I think retailers are going to try it and basically go back to the regular model. I just don't want to tick off customers in the meantime.”
Launched online this year by the VSDA's Independent Dealers of Entertainment Association (iDEA), the white paper explores the possible effects of various subscription options on retailers and their customers.
“It is cautionary in that we aren't saying ‘you have to do this,’ said Adrian Hickman, manager of TLA Video in Philadelphia, and co-creator of the white paper. “It is designed to say that just because you don't do it, don't ignore the fact that you are going to need to understand it so you can compete against it.”
Specifically, the paper analyzed the financial impact of a subscription plan assuming a 15 percent penetration rate of a retailer's 1,000 active customers.
Taking those 150 customers, the paper presumed that 40 of those customers typically spend $100 per month ($4,000); 50 customers spend $50 per month ($2,500); 10 spend $35 ($350) and the remaining 50 customers spend $3 per month ($150) for monthly revenue of $7,000.
Converting those 150 customers to a $20 per month subscription plan would bring in monthly revenue of $3,000 — or $4,000 less per month than a conventional rental plan.
To break even, the retailer would have to find an additional 200 customers — a scenario that frightens most rentailers.
“I think it is mostly a way for you to run your legs off,” said Weir Barnwell, president of Video Center in Kissimmee, Fla. “You are taking the best customers and converting them into $17-per-month customers. You are basically capping a person's spending. I don't see that happening in any other type of retail.”
Thinking Outside the Store
Terry Field, owner of Super Video in Albany, N.Y., which is surrounded by 11 Blockbuster and Hollywood locations, felt compelled to offer an in-store subscription — but with a twist.
With his offer of 10- or 20-pack pre-paid rentals with a one-week extended viewing period per title, Field said customers get the cost savings of a subscription service without time constraints or late fees.
“What customers are really looking for is more convenience,” Field said.
Marc McCloud, owner of Orbit DVD in Asheville, N.C., was initially opposed to subscription programs, but after experimenting since May with different pricing plans, found a large number of customers from outside his city limits trying the service.
“They might only try it for a few months, but at least I got their money for two months,” McCloud said. “The advantage over an online service is that here you are walking out with something. It is an immediate gratification.”