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Study: Buyers Big Renters, Too

27 Aug, 2004 By: Holly J. Wagner

People who buy lots of DVDs haven't necessarily stopped renting them, and many use rentals as a test-drive for purchases, according to a survey by Lyra Research.

“We can construct obvious logical theories why consumers who own more DVDs would also rent more videos,” said Steve Hoffenberg, Lyra Research's director of electronic media research. “The more people like to watch videos, the more likely they are to both own and rent them. But such theories don't jibe with a commonly espoused assumption in the video-rental industry that the dramatic growth in consumer purchases of prerecorded DVDs is the chief cause of this year's slump in video rentals.”

The firm surveyed more than 1,000 active renters about their rental practices and the impact of buying on renting, and published the results in “Flicks for Hire: A Video-Rental Survey.” About 10 percent of the sample were online renters and about two-thirds rented from major chains, Hoffenberg said.

Among his findings, Hoffenberg said, “clearly the Netflix people are renting more.” Survey participants averaged 10 rentals per month, but Netflix renters averaged 15 a month. Major chain renters averaged 9.4 titles per month, and renters from independent stores rented slightly more, averaging 9.9 titles per month.

Renters Lyra surveyed said $24.99 a month is too expensive for a three-out subscription. Blockbuster's in-store subscriptions are priced at $24.99 for a two-out plan, but executives told analysts recently that the chain is offering a $10 price break for the first month because too few low- and medium-volume renters were signing up for subscriptions. Meanwhile, Netflix suffered defections when the company raised the price of its three-out online subscription from $20 a month to $22 in June.

Because of the way the survey was constructed, Hoffenberg said he could not draw a conclusion about what is sapping the rental market. It's possible that the answer lies in new technology, although executives from at least two of the major chains have said their businesses have not felt noticeable impact from new delivery systems like movie downloading.

That may not last much longer if the trends that market research firm In-Stat/MDR uncovered continue.

The worldwide value of consumer-oriented video subscription services delivered via the Internet will grow to more than $4.6 billion in 2008, In-Stat/MDR reported, and while sports packages are driving signups, they also whet consumers' appetite for more types of content.

Sports video subscriptions are being used to leverage what networks already have on TV and are enticing more consumers to sign up for enriched broadband services such as MSN Premium. Synacor and Earthlink are bundling sports video bargains along with greatly improved user convenience.

Among other In-Stat/MDR findings: By 2008, North America and Asia will each constitute about one-third of the worldwide Internet video market, with Europe coming on strong. The key to long-term success will be brand names associated with a quality service for computers, TV sets and mobile devices.

Portable media devices will eventually create new business models for pushing content to media PCs and then making it portable, In-Stat found, citing new services, content offerings and geographic territories of services like Movielink, Cinemanow, Akimbo and the U.K.'s BSkyB.

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