The Video Rental Industry NAICS 53223 Group 4 “DVDs will be around a long time, but we're building for the day when they're not.” Netflix founder and CEO Reed Hastings

Industry Description The video rental industry is a highly competitive landscape that now thrives on technological advances. The glory days of browsing videos among the crowds on a Friday night may be behind us, but the Internet has provided a slew of entertainment options for the majority of people. Due to high numbers of DVD players and computers, nearly all households provide a market for this industry. The Internet explosion has given the industry competition in the form of legal and illegal movie downloads and the cable industry has given the industry competition in the form of video on-demand services, free movies on demand and access to all movie channels such as HBO and SHOWTIME. Beginning in 1999 with the creation of Internet-based Netflix, the video rental and retail industry joined the ranks of other industries finding success with e-commerce. Blockbuster, the dominant player of the overall industry, launched its online offering in 2004, first to the U.K. market and then to the U.S. market. By 2002 however, Netflix had emerged as the reigning king of online DVD rentals. For one monthly fee customers could go online to rent a pre-specified number of movies and keep them as long as they pleased, with no late fees. Customers could also stream movies immediately to their computers. In addition, Coinstar’s Redbox has expanded its number of $1 supermarket rental kiosks and public libraries also have extensive video collections for low or no cost at all.

Industry Analysis Market Share Opportunities for companies linked to providing streaming video and high quality downloads Partnerships with other types of entertainment mediums Blockbuster 35.9% Other 42.8% Movie Gallery 21.3% Revenue Video customers have far more options in front of them now than ever before. Competing for the traditional movie viewer’s time are Internet sites like Hulu and YouTube videos, iTunes downloads, and Amazon Unbox. Television shows have also been thrust into the video-on-demand world eating up movie time as well and detracting from the cable television industry. Though Blockbuster commands the largest single piece of the video rental industry pie, it’s really the technological competition from non-traditional sources that keep the industry evolving. Movie Gallery, the second largest major player in the market, is being subjected to major revisions due to Chapter 11 Bankruptcy protection. Total industry revenue has steadily decreased, partly because a successful product depends on customers’ disposable income. Concerns over the economic recession and increasing competition from external sources will influence the downturn of the industry even further. The market saw an overall decrease in movie releases, wages paid and number of employees. In addition, hundreds of Blockbuster and Movie Gallery stores have closed. Video rental industry operators can benefit from agreements with major motion picture distributors, but this can be a threat for others. Kiosk and mail-order retailers such as NCR, Redbox and Netflix often buy rental copies of new releases from other stores because Hollywood studios don’t like their low prices and won’t sell to them directly. Opportunities to partner with other entertainment mediums, like Netflix partnering with Wii to stream movies on the Wii game console is an example of how the market is continually changing. IBISWorld Industry Report 2010

Industry Analysis Highly competitive Rental options can include mail-order, online streaming, physical store locations, video-on-demand, illegal and legal Internet Evolved through technological changes to become more convenient and user-friendly

References IBISWorld Company Report. 2010. Blockbuster. Retrieved April 21, 2010 from IBISWorld database. IBISWorld Company Report. 2010. Netflix. Retrieved April 20, 2010 from IBISWorld database. IBISWorld Industry Report. 25 March 2010. DVD, Game & Video Rental in the US. Retrieved April 20, 2010 from IBISWorld database. Reisinger, D. (2010). Netflix brings streaming to all Wii consoles. The Digital Home. Retrieved April 12, 2010 from http://news.cnet.com/8301-13506_3-20002243- 17.html "Video Tape Rental and Retail." Encyclopedia of Global Industries. Online Edition. Gale, 2008. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2010. White, M. & Satariano, A. (2010). NCR to begin selling new dvds in its blockbuster kiosks in July. Bloomberg Businessweek. Retrieved from http://www.businessweek.com/news/2010-04-16/ncr-to-begin-selling- new- dvds-in-its-blockbuster-kiosks-in-july.html I’m sure we will need to add others!