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Is DVD Store A Dead Duck?

Is DVD Store A Dead Duck?
Is rummaging at the DVD store a thing of the past?

There are two big trends in video rental emerging, says Sam Yip, Telsyte analyst. Both appear to be a threat to the video store.

One is digital downloads, the other is the emergence of DVD kiosks, which has seen a “rapid” increase in the past 12 months, he says.

DVD kiosks from RedRoom (purchased by Franchise Entertainment Group in 2011, who operate Blockbuster and Video Ezy) and Movie Mate are appearing in prominent locations – shopping centres, train stations throughout the country.

“Faster broadband speeds mean people are now much more inclined to download” than traipse out to a physical store, Yip notes. And in the age of high speed 4G services and the forthcoming NBN in 93% of Aussie homes will be even more threat to bricks and mortar video rental stores.

The Aussie DVD rental market was the largest per capita in the world in 2009, with over 180 million movies rented.

With over 280 stores nationwide, Blockbuster Australia is one of the biggest video stores in Oz. Some franchisees achieved double digit rental growth in 2011, it claims.

Launching a major marketing drive to in October last, Blockbuster Australia said its business is “in good shape and unaffected by the Blockbuster Inc’s situation” as it looked to distance itself from its parent company’s current woes.

But now the UK network is in trouble, announcing closure of over 25% of its store network, yesterday.

However, one industry exec who asked not to be named indicated Blockbuster is facing severe difficulties locally. The company could not be contacted for comment at the time of writing.

But consumers are making the journey to the video store less and less, according to several who we spoke to.

One self-confessed movie buff said he mainly gets rental movies via “on-demand services that make the video store redundant and obsolete. I get movies through Google Play as an Android smartphone user, Sony Entertainment Network (via PlayStation) as its easier and more convenient.”

Another said: “I check online (on illegal torrent sites) and if nothing comes up then we will just go to Blockbuster and see what they’ve got.”

“But its $6 every time, so we re going there less and less, as online is cheaper. I used to go to Blockbuster a lot more when I had a smaller broadband plan but now have a 50GB download limit so am much less restricted”.

The advent of affordable 1TB/750GB hardrives with oodles of storage also means movies lovers can keep a massive library of titles without the need for frequent rentals.

A Telsyte study, out early last year showed more than 300,000 Australian homes, or one in 10, were accessing an Internet TV service (IPTV). And with the rise of tablets and Smart TV’s in Aussie homes, this figure is bound to have increased even more.

Just last week, Foxtel announced its Go app for tablets would now offer movies and TV titles like We bought A Zoo, Tinker Tailor Soldier Spy, Road To Perdition from its ‘Movies & Premium Drama’ category.

IPTV services are indeed eating the video store for breakfast.

Scott Lorsen CEO of FetchTV, says the “new wave of Internet based service such as FetchTV, Apple TV and Telstra T-Box are true substitutes for the video store.”

There are only a few online video on-demand services that actually have a complete catalogue of titles in Australia, he notes, from the all-important new releases to old, classic and childrens movies.

Although not revealing exact subscriber numbers for its Oz service, Lorsen told SmartHouse growth is “very healthy” and users are averaging 3.4-4 movie rentals from its on-demand movie service per month, identical to the average rental rates of 4 titles per month at the video store.

Conversion rates to FetchTV are around 100%, meaning once users convert to online rentals there little or no going back to old ways of consuming movies.

“If you’d asked me a year ago, I would have said the demise of the video store was overstated, but now we’ve reached tipping point,” he says.

And  Lorsen predicts 2013 is going to be a massive year of growth for online video activity, and “far more aggressive bundling strategies from telcos” as Telstra look to increase penetration of T-Box and Foxtel, while Optus and iiNet both bundle FetchTV with broadband and phone services.

Read: Smart TV Movie Streaming To Replace Video Disc & Blu-ray

But its not all about new releases, either, the challenge for retailers and e-tailers alike is about getting “a good content mix” between old classics titles and newer film and TV, and for stores to have a “big library” of movies to choose from. Distribution is also a major issue at the supply end, says Yip.

If you look along the bottom of any DVD, there is a slew of logos of Hollywood and independent movie houses and all these need to be agreement about distribution nights before a title can be released, something which all the major online content players are struggling with, even big players like Apple, Google and Amazon.

 “The physical movie rental stores need to evolve…in order to survive they need to give consumers a reason to come in” whether it’s offering specific genres, more kids titles (which always enjoys more success than other categories), says Yip.

Selling DVD’s cross category like Big W and Target does also works; bundling DVD and Blue Ray’s with another product and offering a discount. Retailers “can’t just sell DVDs anymore…they have to bundle it with something else “- in supermarkets, DVD are strategically placed alongside confectionary and popcorn.

Stores like JB Hi-Fi still report good DVD sales which are strategically positioned at the front of the store or near electronic devices.

The digital providers like Foxtel and FetchTV have already cottoned on to this with bundling of services, it appears.

New research from the US out today shows spending on movies is still up but physical DVDs – either buying or renting – is down 3%, while digital movies, in particular on-demand services, is up.

“On the whole, TV-based Video-on-Demand (VOD) and digital rentals from over-the-top services such as Apple’s iTunes vastly outpaced the number of digital movies purchased in 2012,” according to iSuppli.

Pay-TV VOD transactions rose 16% in 2012 reached 685 million, while digital rentals grew 61% to 174 million consumers.