February 29, 2008
Kiosks and Online Killed the Video Store
Things are not looking good for retailers in the video store business. For one thing, sales of DVDs are down. For another, consumers are increasingly likely to rent titles and when they do, they seem to prefer placing their order online or complete the transaction at a kiosk.
Consider the numbers. Sales of DVDs fell 3.2 percent last year to $15.9 billion and further declines are projected for this year and next, according to Adams Media Research.
DVD rentals grew to $8.2 billion in 2007 and Adams expects the market to reach $8.5 billion by 2012.
“Kiosks and online rentals are the two growing segments of the packaged video rental market, which means the traditional video store is having to struggle to keep its market share,” Jan Saxton, a vice president at Adams, told Reuters.
According to Adams, kiosks are expected to do $926 million in business in 2012 up from $198 million today. The online subscription business will grow from $1.8 billion now to $2.9 billion in 2012. Store rentals are expected to fall from $6.2 billion last year to $4.6 billion over the next four years.
While most are aware of the affect that the Netflix online service has had on the business of renting videos, fewer may be aware of the sizeable impact that kiosk systems, specifically those operated by Redbox, are having.
Just this month, Redbox has made two major announcements with Wal-Mart and Walgreens agreeing to place the video rental kiosks in virtually all their stores in the U.S. by the end of 2009. The Redbox kiosk holds more than 500 DVDs that consumers can rent for $1 a night with the swipe of a credit or debit card. For added convenience consumers can reserve a title online and pick it up at the kiosk. Returns can be made to any location with a Redbox kiosk.
Discussion Questions: Are the days of the video store numbered? Does the emergence of video kiosks also mean that video departments in mass merchants and other stores will look considerably different in future years?
- Redbox Announces Agreement with Wal-Mart to Offer Additional Automated DVD Rental Kiosks Nationwide – Redbox
- Walgreens to put Redbox DVD rentals machines in 1,800 more stores – Chicago Tribune
- Studios Are Trying to Stop DVDs From Fading to Black – The New York Times
- Convenience is golden in video rental market – Reuters
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Maybe my own experience is representative of what’s happening out there. The one video rental store in my part of town, a quirky independent (picture Jack Black behind the counter handing out free advice on horror movies) shut its doors last summer. Since then, I’ve upgraded my cable service to digital with built in DVR and get so many commercial-free films (with the basic package, no less) that I haven’t felt the need to find a new store.
I expect a combination of internet-downloaded and cable movies to kill the video store. Kiosks will be around as a transitional convenience for those who hang on to the DVD hardware, but we’re talking 15 years tops.
The stand-alone video store appealing to everyone is certainly in a precarious position. With online ordering and downloading, there are convenient ways to obtain movies. However, I have been surprised to see a brisk business at my local grocery story for $1 video rentals of primarily kids and family movies. Packing up a movie and returning it to a place which is frequented for reasons other than renting a video so that audience group can rent a video on impulse or when company is coming may be realistic–especially to families that are not tech savvy.
In special situations the movie rental business may be around for awhile longer, but the free-standing video stores needs to find another complementary service to offer if they are going to stay in business.
Short answer: Yes.
I agree that the kiosk is transitional. iTunes just became the #2 music retailer behind Wal-Mart, and I expect the same will happen in video, especially for rentals. You can now choose an HD movie rental via cable or satellite and usually start watching the next showing within 1/2 hour for hit movies, and from the download services like Netflix or AppleTV/iTunes, choose from thousands of movies (and hundreds of HD movies for now) and start watching in no more than a few minutes. (Ed Dennis, those compression algorithms are already quite efficient).
What about those quirky video store clerks who can help you find just the right flick for the evening? Alas, they are doomed. But the community aspects of the online services are a pretty good substitute, and lists of movies that friends enjoyed who have proven to have similar tastes as you can help you find some real gems.
I still use rabbit ears myself–and a rotary phone!–but props for the clever story head…the Buggles (and I) thank you.
Before we bury brick and mortar and kill the kiosk in favor of the divine download, let’s consider all the purchase drivers at work here. As Joel pointed out, there are some consumers for whom some purchase occasions simply require “being immersed in the medium.” That’s why we still have book stores in the face of Amazon and Audiobooks.
For other consumers, impulse is king. I want “something” when the mood strikes. If it is a soft drink, and the closest thing is a vending machine, I’ll probably pick from whatever is there. If it is entertainment, and what is in front of me is a kiosk, I’ll probably pick from whatever is there.
For the vast majority of consumers, going to the computer to order something to be delivered by mail is not “immediate gratification” either. That is a planned purchase that requires effort and patience. The Netflix purchase experience has more in common with a Lands’ End order than it does with a Redbox rental.
As to the divine download–yes, it is coming. But it will only be truly viable when the download is to my TV screen, NOT to my PC. People over the age of 30 do not watch movies on their laptop unless they are afraid their spouse is going to catch them.
But here’s the real key to the longevity of traditional formats. True entertainment enthusiasts tend to use multiple channels to satisfy different needs and usage occasions. They love movies–period. However they come.
There are two real culprits here, in addition to a poor business model.
The first is online (since it offers the ability to sell or rent DVDs cheaper and faster), but secondly, the true key to the failure of DVD sales in general is On-Demand and other dynamic consumer choice movie services. These offer a slew of movies for a low monthly fee and give consumers a tremendous amount of choice among many key providers.
Driven through your TV by local content providers, you have a new model that lowers cost, increases customer satisfaction and offers a better choice than the brick and mortar video store. Add to this the outdated model that the brick and mortar video store embraces and you have a model of what not to do in retail.
In retail it is evolve or perish!
Increasingly consumers don’t want to take the time to go to a store and rent a video. Their time is precious. Movies on demand, on cable or digital are the future. And as more consumers buy DVDs, that also reduces the rental market.
One thing that wasn’t mentioned are public libraries. Most of them now get all the new releases, often several copies, and provide them for free. I can easily reserve just about any movie that has ever been put on DVD. While I often can’t get it on demand, they will usually arrive within a month. At any one time I might have 20 videos on order with 3-4 a week arriving. Kind of like having Netflix for free.
My local video store just closed its doors last weekend–not an independent, but a Hollywood video store.
I have consulted in the video industry for several years (several years ago), both on the manufacture/distribution and on the retail side. Even then, there was awareness that this is a shrinking market and that the industry is better suited for digital distribution, provided all the pieces are in place.
I don’t think this is a story about how the kiosk killed the video store. The kiosk is a transitionary retail model until we can get to a completely digital video supply chain. I mean, when you have a product demand curve that pretty much is hyperbolic–almost unlimited demand at first, and dropping off rapidly to a very low steady state demand, it’s nearly impossible to balance creating enough physical product to meet that initial demand without killing the rental business on the back end when you don’t need all that physical inventory anymore–as Blockbuster struggled with “previously viewed” sales cannibalizing their rental revenue. Digital distribution is the answer.
Sure, not everyone is going to participate in the digital age, and kiosks will probably fill their movie rental needs just fine. But I think a digital world like the ad where the guy behind the counter offers the customer “every movie that was ever made” is closer than you think.
VOD is still in its infancy, and will be for a number of years to come. The studios are taking steps to prop up declining video sales numbers by adding a download of a film (which will take 5-10 minutes) in-pack with a new DVD. There will be consolidation of video stores, but they will not go away overnight. I’d be more concerned about movie theater going than renting videos.
It will become significantly more difficult for the neighborhood video store to survive, not because they don’t provide a great service, but the studios are more concerned about profits than quality. The local video store is great when you need a recommendation of a great film, especially one that has not had a lot of studio promotion behind it. Try and find the story of Edith Piaf at a kiosk. It just isn’t going to happen.
What we are seeing is the continuation of homogenizing America. We are going to allow a subsidiary of McDonald’s (Redbox) choose a small selection of large studio movies, place them in a kiosk, and then rent them where we purchase our processed cheese and pressed deli meat. I’m not sure this should be seen as a positive.
I think the reinvention possibilities for Blockbuster, etc, are substantial, but the key word is “reinvention.” If they think about incremental changes, they are sunk. This is not about “shopability,” this is about creating some kind of video lifestyle center. I don’t work with them, but putting on my marketing consulting hat, I would take them down that path; lifestyle and experience invention first, then shopability….
Many video stores are still doing quite well, however, it would appear that Redbox might have a paradigm breaking format.
We have only one Redbox in our area and it’s great when it has any inventory. I hear a lot of comments like “Redbox doesn’t have it” so I had to go to the video store.”
Mail, Kiosk and cable are killing Blockbuster. The complete demise of all of these is, however, still out on the horizon. Digital TV downloads will become more and more popular. Compression programs analogous to MP3 will be developed for video. If one can download a movie for 50 cents in 3 minutes then all other forms of delivery will wither away.
The music retailer…virtually gone. The movie retailer…virtually gone. Being involved–still–in the former, I’ve seen first hand the shrinking market share, the struggle to find alternative revenue streams, the daily decisions to cover expenses and finally the realization that you’re not going to survive.
Retail of any kind is tough right now but it’s impossible in these two markets. I feel for all of the mom and pops out there. Good luck in your future endeavors.
It all depends on how long a time period you’re talking about. Short-term, there will be plenty of traditional shoppers. But over the longer haul, I think you’ll see the same trends in video that we are currently seeing in audio, i.e., more downloads and fewer traditional purchases.
Robert J. Higgins, founder and CEO of Trans World Entertainment is offering $5 a share to buy the whole company. Trans World owns 800 stores: SunCoast, F.Y.E, Sam Goody, Saturday Matinee, Wherehouse Music, and Coconuts. The company’s Christmas comp sales were 12% below the previous year. Clearly, Mr. Higgins believes that it pays to be “one of the last men standing” in a declining category. TWMC is a $4 stock, so the $5 offer appears fairly bold given the general opinion that CDs and DVDs have such a bleak future.
Perhaps now that the Blu-ray versus HD DVD format war is over, entertainment retail stores will reap a sales resurgence. Maybe not leading to 100% comp increases, but reasonable increases. To state the obvious: comp sales rise when there are fewer stores to share the business. Since no one is building new video and music stores, and many of the existing ones are closing, the remaining players have less competition.
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Maybe my own experience is representative of what’s happening out there. The one video rental store in my part of town, a quirky independent (picture Jack Black behind the counter handing out free advice on horror movies) shut its doors last summer. Since then, I’ve upgraded my cable service to digital with built in DVR and get so many commercial-free films (with the basic package, no less) that I haven’t felt the need to find a new store.
I expect a combination of internet-downloaded and cable movies to kill the video store. Kiosks will be around as a transitional convenience for those who hang on to the DVD hardware, but we’re talking 15 years tops.
The stand-alone video store appealing to everyone is certainly in a precarious position. With online ordering and downloading, there are convenient ways to obtain movies. However, I have been surprised to see a brisk business at my local grocery story for $1 video rentals of primarily kids and family movies. Packing up a movie and returning it to a place which is frequented for reasons other than renting a video so that audience group can rent a video on impulse or when company is coming may be realistic–especially to families that are not tech savvy.
In special situations the movie rental business may be around for awhile longer, but the free-standing video stores needs to find another complementary service to offer if they are going to stay in business.
Short answer: Yes.
I agree that the kiosk is transitional. iTunes just became the #2 music retailer behind Wal-Mart, and I expect the same will happen in video, especially for rentals. You can now choose an HD movie rental via cable or satellite and usually start watching the next showing within 1/2 hour for hit movies, and from the download services like Netflix or AppleTV/iTunes, choose from thousands of movies (and hundreds of HD movies for now) and start watching in no more than a few minutes. (Ed Dennis, those compression algorithms are already quite efficient).
What about those quirky video store clerks who can help you find just the right flick for the evening? Alas, they are doomed. But the community aspects of the online services are a pretty good substitute, and lists of movies that friends enjoyed who have proven to have similar tastes as you can help you find some real gems.
I still use rabbit ears myself–and a rotary phone!–but props for the clever story head…the Buggles (and I) thank you.
Before we bury brick and mortar and kill the kiosk in favor of the divine download, let’s consider all the purchase drivers at work here. As Joel pointed out, there are some consumers for whom some purchase occasions simply require “being immersed in the medium.” That’s why we still have book stores in the face of Amazon and Audiobooks.
For other consumers, impulse is king. I want “something” when the mood strikes. If it is a soft drink, and the closest thing is a vending machine, I’ll probably pick from whatever is there. If it is entertainment, and what is in front of me is a kiosk, I’ll probably pick from whatever is there.
For the vast majority of consumers, going to the computer to order something to be delivered by mail is not “immediate gratification” either. That is a planned purchase that requires effort and patience. The Netflix purchase experience has more in common with a Lands’ End order than it does with a Redbox rental.
As to the divine download–yes, it is coming. But it will only be truly viable when the download is to my TV screen, NOT to my PC. People over the age of 30 do not watch movies on their laptop unless they are afraid their spouse is going to catch them.
But here’s the real key to the longevity of traditional formats. True entertainment enthusiasts tend to use multiple channels to satisfy different needs and usage occasions. They love movies–period. However they come.
There are two real culprits here, in addition to a poor business model.
The first is online (since it offers the ability to sell or rent DVDs cheaper and faster), but secondly, the true key to the failure of DVD sales in general is On-Demand and other dynamic consumer choice movie services. These offer a slew of movies for a low monthly fee and give consumers a tremendous amount of choice among many key providers.
Driven through your TV by local content providers, you have a new model that lowers cost, increases customer satisfaction and offers a better choice than the brick and mortar video store. Add to this the outdated model that the brick and mortar video store embraces and you have a model of what not to do in retail.
In retail it is evolve or perish!
Increasingly consumers don’t want to take the time to go to a store and rent a video. Their time is precious. Movies on demand, on cable or digital are the future. And as more consumers buy DVDs, that also reduces the rental market.
One thing that wasn’t mentioned are public libraries. Most of them now get all the new releases, often several copies, and provide them for free. I can easily reserve just about any movie that has ever been put on DVD. While I often can’t get it on demand, they will usually arrive within a month. At any one time I might have 20 videos on order with 3-4 a week arriving. Kind of like having Netflix for free.
My local video store just closed its doors last weekend–not an independent, but a Hollywood video store.
I have consulted in the video industry for several years (several years ago), both on the manufacture/distribution and on the retail side. Even then, there was awareness that this is a shrinking market and that the industry is better suited for digital distribution, provided all the pieces are in place.
I don’t think this is a story about how the kiosk killed the video store. The kiosk is a transitionary retail model until we can get to a completely digital video supply chain. I mean, when you have a product demand curve that pretty much is hyperbolic–almost unlimited demand at first, and dropping off rapidly to a very low steady state demand, it’s nearly impossible to balance creating enough physical product to meet that initial demand without killing the rental business on the back end when you don’t need all that physical inventory anymore–as Blockbuster struggled with “previously viewed” sales cannibalizing their rental revenue. Digital distribution is the answer.
Sure, not everyone is going to participate in the digital age, and kiosks will probably fill their movie rental needs just fine. But I think a digital world like the ad where the guy behind the counter offers the customer “every movie that was ever made” is closer than you think.
VOD is still in its infancy, and will be for a number of years to come. The studios are taking steps to prop up declining video sales numbers by adding a download of a film (which will take 5-10 minutes) in-pack with a new DVD. There will be consolidation of video stores, but they will not go away overnight. I’d be more concerned about movie theater going than renting videos.
It will become significantly more difficult for the neighborhood video store to survive, not because they don’t provide a great service, but the studios are more concerned about profits than quality. The local video store is great when you need a recommendation of a great film, especially one that has not had a lot of studio promotion behind it. Try and find the story of Edith Piaf at a kiosk. It just isn’t going to happen.
What we are seeing is the continuation of homogenizing America. We are going to allow a subsidiary of McDonald’s (Redbox) choose a small selection of large studio movies, place them in a kiosk, and then rent them where we purchase our processed cheese and pressed deli meat. I’m not sure this should be seen as a positive.
I think the reinvention possibilities for Blockbuster, etc, are substantial, but the key word is “reinvention.” If they think about incremental changes, they are sunk. This is not about “shopability,” this is about creating some kind of video lifestyle center. I don’t work with them, but putting on my marketing consulting hat, I would take them down that path; lifestyle and experience invention first, then shopability….
Many video stores are still doing quite well, however, it would appear that Redbox might have a paradigm breaking format.
We have only one Redbox in our area and it’s great when it has any inventory. I hear a lot of comments like “Redbox doesn’t have it” so I had to go to the video store.”
Mail, Kiosk and cable are killing Blockbuster. The complete demise of all of these is, however, still out on the horizon. Digital TV downloads will become more and more popular. Compression programs analogous to MP3 will be developed for video. If one can download a movie for 50 cents in 3 minutes then all other forms of delivery will wither away.
The music retailer…virtually gone. The movie retailer…virtually gone. Being involved–still–in the former, I’ve seen first hand the shrinking market share, the struggle to find alternative revenue streams, the daily decisions to cover expenses and finally the realization that you’re not going to survive.
Retail of any kind is tough right now but it’s impossible in these two markets. I feel for all of the mom and pops out there. Good luck in your future endeavors.
It all depends on how long a time period you’re talking about. Short-term, there will be plenty of traditional shoppers. But over the longer haul, I think you’ll see the same trends in video that we are currently seeing in audio, i.e., more downloads and fewer traditional purchases.
Robert J. Higgins, founder and CEO of Trans World Entertainment is offering $5 a share to buy the whole company. Trans World owns 800 stores: SunCoast, F.Y.E, Sam Goody, Saturday Matinee, Wherehouse Music, and Coconuts. The company’s Christmas comp sales were 12% below the previous year. Clearly, Mr. Higgins believes that it pays to be “one of the last men standing” in a declining category. TWMC is a $4 stock, so the $5 offer appears fairly bold given the general opinion that CDs and DVDs have such a bleak future.
Perhaps now that the Blu-ray versus HD DVD format war is over, entertainment retail stores will reap a sales resurgence. Maybe not leading to 100% comp increases, but reasonable increases. To state the obvious: comp sales rise when there are fewer stores to share the business. Since no one is building new video and music stores, and many of the existing ones are closing, the remaining players have less competition.