Rental Subscription Model Fails To Spread

Discussion in 'DVD Video' started by Black Locust, Sep 18, 2005.

  1. Black Locust

    Black Locust Guest

    Sinking Subs?

    Posted: September 8, 2005

    As Netflix and rival Blockbuster Online amass collective subscriber
    bases approaching 5 million members, adoption of the subscription model
    by the rest of industry would appear to be negligible. sold its once promising subscription service to Netflix, and
    separate forays from Hastings Entertainment (in-store) and Movie Gallery
    (online and in-store) came and went. Gallery subsidiary Hollywood Video
    continues to maintain an in-store subscription service.
    In a survey of 225 independent video retailers, Home Media Research
    found 12 percent offered subscription programs compared to 41 percent
    that offered frequent renter rewards.
    Among independent video retailers contacted for this story, just two
    offered a subscription service. Only one liked it.
    With three locations in Massachusetts, Superstar Video launched an
    in-store service before Blockbuster and Netflix only to see its top
    customers¹ monthly expenditures drop from $100 to $20.
    ³You can imagine it is not our favorite promotion,² said owner Jon
    Cinelli, who said he has continued the program in one store for those
    customers who ask for it.
    Hollywood Express, which has four stores and is located near
    Massachusetts Institute of Technology, initiated a survey with the Sloan
    School of Management and found that the majority of its customers were
    not interested in subscriptions.
    New York-based Champagne Video, like many retailers, prefers pre-paid
    rental packages, coupons and other promotions to subscriptions.
    ³We do not see the positives [of subscriptions] other than competing
    with Big Blue,² owner Marc Oringer said.
    Todd Zaganiacz, owner of Video Zone in South Deerfield, Mass., and head
    of the National Entertainment Buying Group, a consortium of 100
    independent retailers across the country, said the number of member
    retailers offering in-store subscription plans was small, representing
    less than 5 percent of the buying group.
    ³For some that have tested it, they have found it has turned more of
    their higher paying customers into [lower paying] subscription customers
    than turning lower paying customers into subscription customers,²
    Zaganiacz said. ³Unless I can encourage those consumers that spend $5
    per month to spend $10, it isn¹t going to work.²
    Bucking the trend, however, is Cinefile Video. The Los Angeles store
    offers two, three or five titles out at a time for $25, $30, $40 per
    month, respectively. Of course, it helps to offer an eclectic film
    catalog of silent films and foreign fare for which film aficionados are
    willing to pay top dollar.
    ³We are pulling a greater amount of money per day than we ever were
    before,² manager Robert Silvey said. ³On average, we have about 15
    renewals per day at minimum $25 per renewal.²
    Web wars
    With Blockbuster Online and Netflix both offering one-out plans for
    $9.99 per month, analyst Michael Pachter of Wedbush Morgan Securities in
    Los Angeles, said the online subscription model would soon implode.
    With a $4 margin on the $9.99 plan, Pachter said, Netflix and
    Blockbuster need almost twice as many customers to reach the same profit
    of the $17.99 price, with a $7 margin. ³If I am the average Joe who
    rents once a week, $18 is kind of a push for me,² Pachter said. ³But $10
    is a compelling value for me. Yet they aren¹t making money from me if I
    am renting four times a month.
    ³I think [Blockbuster and Netflix] will bloody each other until one of
    them gives up,² Pachter said. ³I think you will see a surge in online
    subscribers at this [$9.99] price point, and then I think it is going to
    crush everybody.²
    Blockbuster spokesperson Randy Hargrove said the $9.99 price is just one
    option Big Blue offers consumers in addition to two- and three-title
    plans, in-store Movie Pass and termination of late fees.
    ³We now have approximately 20 percent of the online rental customer
    base,² Hargrove said. ³Based on all the industry data we are seeing, we
    believe we have clearly increased our share of the in-store rental
    He said the company continues to see increased revenue from online
    subscribers who also come into the stores driving incremental revenue.
    ³If you add the revenues we generated with our online service, domestic
    same-store rental revenues were up more than 11 percent [in the second
    quarter],² Hargrove said. One Blockbuster franchisee, who wished to
    remain anonymous, disputed the benefits of the in-store subscription
    plan, arguing that the average consumer basket (movies, games, popcorn
    etc.) has shrunk since inception of subscriptions.
    ³The idea with the in-store movie pass was the consumer would buy
    popcorn, candy or a previously rented DVD,² the owner said. ³This is not
    the case. Not only did the consumer exchange his rentals without buying
    anything, the typical consumer would exchange his films once a day.²
    Pachter said in-store subscribers are spending about $5 a month on
    merchandise, which he agreed wasn¹t a lot in the aggregate if they
    visited the store a lot.
    ³Blockbuster is doing this not to make money,² Pachter said. ³They are
    doing this to keep from losing money.²
    "Our enemies are innovative and resourceful, and so are we.
    They never stop thinking about new ways to harm our country and our people,
    and neither do we." - George Dumbya Bush
    Black Locust, Sep 18, 2005
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