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Rentail Puts Positive Spin on Economic Woes

29 Oct, 2008 By: Erik Gruenwedel

The troubled economy may spell opportunity for video rental stores, as cash-strapped consumers skip nights out on the town and gravitate toward more economical ways to entertain themselves.

Todd Zaganiacz, president of the National Entertainment Buying Group, a coalition of 300 independent video rentailers nationwide, said rental has an opportunity to significantly increase revenue during the downturn — a prospect Blockbuster alluded to when it said third-quarter domestic same-store sales increased 5.1%, with same-store rental revenue up 0.8%.

“Sure, [rental is] not the cash cow of days past, but it's still a viable alternative for someone who doesn't have a lot of money to spend on entertainment,” he said.

Kirk Kirkpatrick of Kentucky-based wholesaler WaxWorks, which caters to smaller retailers in the Midwest, said his company sent retailers promotional posters outlining the benefits of movie rentals compared to other forms of entertainment.

“People can see a value of renting a movie,” he said. “I’m not going to say that we’re going to grow [revenue] in the fourth quarter, but there is potential for hopefulness.”

Overall, home entertainment appears to be holding up better than most other industries. Home Media Magazine’s market research department estimates that consumer spending on home entertainment, sales and rentals combined, in the first nine months of this year was down just 2.6% from the same period last year, to $14.7 billion. Sellthrough was off 3.2%, with a 5.7% decline in DVD sales offset somewhat by a 319.2% gain in Blu-ray Disc sales (to about $315 million). Rental was down 1.4% for the nine-month period ending Sept. 30.

So far, fourth-quarter DVD sales have been a mixed bag. The season got off to a slow start when Warner Home Video’s Sex and the City:The Movie sold less than what had been expected, studio sources say, but the subsequent week Paramount Home Entertainment’s Iron Man sold 7.2 million DVDs and more than 500,000 Blu-ray Discs. Indiana Jones and the Kingdom of the Crystal Skull was another underperformer, studio sources say, while The Incredible Hulk sold remarkably well, moving nearly 2 million units its first day alone.

Still, Kirkpatrick said the threshold of reasoning for purchases among consumers is at the lowest point since he’s been in the business. He said retailers tell him consumers are scrutinizing $20 purchases.

“They are looking at everything,” Kirkpatrick said. “It’s not just looking for cheaper gas. I mean they are really worried.”

Packaged media isn’t alone. The Conference Board’s consumer confidence index this week fell to 38 (from a possible 100), the lowest level since the research firm began tracking consumer habits in 1967. The index, which is based on the consumer habits of 5,000 U.S. households, was at 95.2 during the same period last year.

"The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence,” said Lynn Franco, director of The Conference Board consumer research center. “This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season."

Zaganiacz said fourth-quarter sales would likely disappoint, despite the flood of major studio titles entering the holidays.

“I would not be surprised to hear studios lowering their [sales] goals,” Zaganiacz said. “The economy is tough, money is tight … consumers don't have the funds to buy them all.”

He applauded Lionsgate and Sony for holding back releases of some key titles, including Pineapple Express, until January.

The Consumer Electronics Association predicted sales of its industry's products would grow 3.5% in the fourth quarter, about half the sales growth seen in 2007. It said GPS devices, in-car video, mobile phones and audio/video products would be the top sellers.

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