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RESEARCH: Previously Viewed Becoming Strong Revenue Source

7 Aug, 2003 By: Melinda Saccone

Video rentailers are increasingly turning to other revenue streams to boost their bottom line. While rental revenue remains the top source of revenue for rentailers, the category as a percentage of gross revenue has declined.

In 2002, video rentals as a source of revenue hit its lowest level ever, accounting for less than two-thirds of rentailers' gross revenue. Rentals accounted for just 60 percent of gross revenue at the end of the year, down from 68 percent in 1998.

Meanwhile, previously viewed video sales (PVV) and new DVD sales gained ground as a supplemental revenue stream. Video Store Magazine market research estimates that PVV sales in 2002 harvested an additional $1 billion for rentailers -- accounting, on average, for 8 percent of their gross revenue. PVV sales as a percentage of gross revenue are on track to account for more than 10 percent of rentailers' revenue in 2003.

Sellthrough-priced DVD (and increasingly VHS) product has allowed rentailers to cost effectively increase copy depth. The top 10 unit shippers at rental in the first-half of the year moved 37.6 percent more product into the rental pipeline than their 1998 counterparts -- with rentailers purchasing on average 60 percent of their inventory on disc.

With more copies on the shelf, rentailers can satisfy consumer demand more quickly and sell off PVV copies sooner.

According to a survey conducted by Video Store Magazine market research in July, after just three weekends of release, rentailers begin to sell off their excess rental inventory. After three months, rentailers have sold off more than 40 percent of their rental inventory.

Although rentailers face increasingly fierce competition from the DVD sales counter, they have used the sale of previously viewed videos -- which are priced significantly below retail -- as a weapon to combat loss-leader pricing by mass merchants.

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