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Video Stores See ‘Window’ in Redbox Decline

19 Jan, 2011 By: Erik Gruenwedel

Recent news that Redbox generated upwards of $30 million below previous revenue estimates in the fourth quarter, suggest about 14 million rental transactions went elsewhere, including to the venerable video store.

If nothing else, independent retailers seized on the news as a welcomed respite from a steady drumbeat of negativity directed by pundits and analysts upon the brick-and-mortar business model, and underscored by Blockbuster Inc.’s ongoing challenges.

“Hell yes, there’s a good spin here for video stores,” said Ted Engen, president of the Video Buyers Group, a trade group with more than 1,500 independent retail members. “There are three times more independents as there are Blockbuster stores.”

Engen said that in talks with members this week several said rental revenue had increased nearly 15% in November and December following a sluggish October. He said the decline at Redbox underscored the success of the 28-day window imposed by Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment, in addition to the reality fewer people visited kiosks.

“Consumers are just getting frustrated going to these boxes and just not finding anything worth watching,” Engen said. “From our numbers, the buy/sell/trade business is up among our members. Warner, Universal and Fox keep telling everybody their sellthrough numbers are up and beat projections.”

Edward Woo, retail analyst with Wedbush Securities in Los Angeles, said Netflix, VOD and big box disc sales likely benefitted from the kiosk decline.

“It should be positive all around, but given the news Blockbuster wants more money from creditors following disappointing holiday sales, that would imply it didn't benefit either,” he said.

Todd Zaganiacz, president of the National Entertainment Buying Group, a coalition of 300 independent video rentailers said new-release embargoes work and should be extended to 45 or 60 days.

“More studios need to jump on this bandwagon,” Zaganiacz said.

Michael Arrington, senior analyst, U.S. video with IHC Screen Digest, cautioned that Redbox’s underperformance wasn’t as bad as reported considering the quarter was dominated by sellthrough titles compared with rental fare.

He said Screen Digest was about to undertake a tour of the studios showcasing data reflecting the effect of 28-day delays.

“It looks like it’s having an effect where you expect there to be an effect, and it looks like it’s not have so much of an effect with specific rental titles,” Arrington said.

The analyst wasn’t so sure studios would want to expand the retail window considering there has existed debate in some circles regarding whether the embargo was having any impact at all.

Arrington said extrapolating kiosks’ projected revenue decline over the total number of independent video stores and Blockbuster locations amounts to not much more than a Pyrrhic victory.

“I mean Blockbuster hardly notices that; neither does Netflix,” he said. “Places where the long-time video store has survived and the kiosks didn’t have some big titles that people wanted to rent, you probably saw a pretty big pop there.”

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