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Rental Key to Blu-ray Adoption, Rentailers Say

16 Jul, 2008 By: Erik Gruenwedel

While studios gear up for a fourth quarter Blu-ray Disc sales surge, DVD rental stalwarts Blockbuster Inc., Movie Gallery and Hastings Entertainment have launched extensive point-of-purchase displays and kiosks to promote the high-definition format.

Working with Sony Corp. and Sony Pictures Home Entertainment, executives with the three rentailers believe giving consumers the option to rent the more expensive Blu-ray movies for their PlayStation 3 will spearhead greater sellthrough of the format in the future.

Separately, online rental pioneer Netflix offers more than 800 Blu-ray movies — top among rental chains — at a premium price compared to standard DVD.

With statistics indicating that increasing numbers of PS3 owners are watching movies instead of just playing games, Michael Pachter, entertainment analyst with Wedbush Morgan Securities in Los Angeles, said the console represents a captive audience to studios for Blu-ray movies.

“Rental will lead, and retail will follow,” Pachter said.

Blockbuster CEO Jim Keyes believes the rental life cycle is a huge opportunity for Blu-ray. He says the format's higher price represents a different proposition compared to $20 sellthough, which he believes is more or less an impulse purchase.

“Even though I can afford a $30 to $34 disc, I'm going to think twice about buying versus renting,” Keyes said. “We think this gives new life to the rental model and can stimulate increased consumer adoption of the format.”

Keyes said the data supported his premise. During the recent Home Media Expo in Las Vegas he said Blu-ray rentals for National Treasure: Book of Secrets, compared to standard DVD sellthrough, trended significantly higher.

Movie Gallery, which still controls significant market share in rural areas of the south and Midwest, eyes Blu-ray rental as an ideal litmus test for the fourth quarter, according to Sherif Mityas, COO and president of retail operations.

“In certain markets we are going to be the low-cost Blu-ray provider from a rental perspective to generate penetration coming into the important holiday season,” Mityas said.

Characterizing Blu-ray as a “game changer,” Hastings CEO John Marmaduke said customers should get the appeal of Blu-ray when compared to standard DVD on a flat-screen HDTV.

But he said studios and retailers should realize that the non-early adopter mainstream consumer already has a couple of standard DVD players that they are happy with. He said when they try a Blu-ray movie they are not going to suddenly throw away their DVD players.

“They are going to continue to rent both formats and not become a real avid purchaser of Blu-ray until they are convinced the selection and availability is up to the standards of DVD,” Marmaduke said. “From their perspective, renting Blu-ray is low risk and high reward.”

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