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Video rental firms battle it out for business

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Posted: Friday, January 14, 2005 10:00 pm

It used to be simpler. Go to the local video store. Pick the movie. Fork out a couple bucks. Get it back by 10 p.m. the next night. Be kind, rewind.

The video rental industry went through dramatic changes in its roughly two-decade history, with small mom-and-pop stores falling victim to such giants as Blockbuster and Hollywood Entertainment. Now, faster than you can say Betamax, things might be changing again.

Faced with growing competition from Netflix and other mail-order services, pay-per-view channels and retailers such as Best Buy and Wal-Mart, the rental industry's Goliaths have found themselves dodging slingshots. And as the Blockbusters and Hollywood Videos of the world adapt, local movie lovers find more and more rental options available to them.

Rent a movie without fear of huge late fees. Pick up DVDs from the mailbox. Buy a used movie at the store, then sell it back on eBay. Buy it new for less than $15 and watch it anytime.

"Certainly there are more options today than customers had five years ago," said Dennis McAlpine, a partner with Scarsdale, N.Y.-based McAlpine and Associates, which follows the video-rental industry.

Blockbuster's recent elimination of late fees is the latest in a series of moves during the past few years designed to keep the company relevant in the changing environment. The company has also launched a mail-order subscription plan that mirrors Netflix as well as numerous incentives to retain customers.

The company has also shown interest in buying its rival Hollywood, which recently drew a $850 million bid from Alabama-based rental chain Movie Gallery.

Netflix, an Internet-based company that charges a flat rate of $17.99 a month to send customers three DVDs at a time through the mail, is one of the big fish in the new rental industry, McAlpine said. The company allows people to choose from a large library of movies, order them by priority and wait while they come through the mail, three at a time.

Subscribers can keep the DVDs as long as they want before sending them back, when new movies are sent as replacements.

The subscription model that Netflix pioneered is so successful that Blockbuster launched its own model last year.

"They were taking customers away from Blockbuster," McAlpine said. "Since Blockbuster had 40 percent o the market, that's a big chunk."

Rental firms at a glance

Here's a comparison of prices at the three major video rental companies:
Blockbuster: $3.99 for a two-day new release DVD and an older one-week rental. Also offers a month of unlimited rentals for a flat rate of $24.99. No late fees.
Hollywood Video: $3.99 for a five-day new release or older DVD rental. $3.29 for a five-day new release VHS rental. $1.99 for an older VHS rental. Late rentals charged in five-day increments at original rental price.
Netflix: $17.99 a month for a revolving library of three DVDs. No time limit on how long DVDs can be kept.
-- News-Sentinel staff

Marilyn Storey, the executive director at the Lodi Chamber of Commerce, describes herself as a "power user" of Netflix. She's used the service for nearly two years and said on she hasn't set foot inside a video store since.

"I haven't even gone in for my free birthday movie," Storey said.

Others aren't so excited about the mail-order subscription services. Lodi resident Tim Konrad said while leaving the Hollywood Video on West Kettleman Lane on Thursday afternoon that picking films from a catalogue and waiting for the mailman doesn't take the place of renting at the store.

"I like simplicity," Konrad said. "I like to see what I get and then take it back when I'm done."

Lodi residents Mike and Chris Ernst use Blockbuster when they rent movies -- though they say rising rental rates have them looking at other avenues. The couple often finds themselves buying DVDs used from the video store, where they cost as little as $10 and never have to be brought back.

"It's better to buy than rent," Chris Ernst said. "You can pay $10 for a used movie and see it as many times as you want."

The Ernsts said they have a collection of more than 500 movies, plus a variety of channels offering other cable and pay-per-view films. They're not alone. With Wal-Mart, Best Buy and other retailers offering DVDs for $14.99 and lower as new releases, former renters are choosing to build film libraries they can watch whenever they desire.

"Customers have decided to buy a cheap DVD for $12 that they can watch more than once," McAlpine said. "Those are rentals (the video stores) aren't getting."

Acampo resident Jennifer Brockman uses the Internet to find her movies, but her Web site of choice isn't Netflix. It's eBay, the online auction site where movies can be sold and resold by those willing to pay the shipping costs. Even with the elimination of late fees at Blockbuster, the cost of rentals still doesn't match the deals that can be found online, she said.

"It costs the same to buy it as it does to rent it," Brockman said. "You might as well keep it."

Not everyone has abandoned the video rental stores. McAlpine believes Blockbuster will be able to hold onto some regular customers with the elimination of late fees, and the interest in purchasing Hollywood shows the company remains a commodity.

Even some of the smaller, mom-and-pop stores that dominated the early rental market have survived -- barely. At Central Video on South Central Avenue, owner Balbadar Squires has competed with one-day rentals for $2.85 a movie, more than a dollar less than the big guys.

"Why do you need a movie for more than one day?" Squires said on Tuesday. "Will you watch it five times? You can just rent it for one day, and it costs less."

Squires also carved out a niche by offering Spanish-language films for her largely Mexican clientele. Other stores across Lodi sell Indian and Asian cinema that can't be found at Blockbuster or Hollywood.

McAlpine believes the video rental business will remain strong as long as movie studios continue to offer exclusive deals for home video release. Videos usually have a 30-day window before a movie can be shown on increasingly popular pay-per-view channels.

Those new releases make up 70 percent of a typical video store's business, he said.

"If they take that away, it's a much larger ballgame," McAlpine said. "You take out 70 percent of their business, and they're in trouble."

Contact Business Editor Greg Kane at gregk@lodinews.com.

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