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DVD rentals re-energized

Netflix, Redbox increase sales

Turns out it’s good to be in the video rental business these days — unless you’re Blockbuster.

While Blockbuster’s stock is tanking and reports of bankruptcy are rearing their ugly head again, the recession is providing companies who offer through-the-mail, online and kiosk-based rentals a boost as fewer consumers opt to purchase movies on DVD and Blu-ray.

Netflix has seen its subs grow more than 600,000 since the beginning of the year to more than 10 million, while Redbox, started by McDonald’s but later sold to Coinstar, plans to this year have 20,000 machines at retailers that enable consumers to rent movies for $1. Redbox expects its revenues to surge by 80% this year, boosting the 5% marketshare it’s already been able to grab.

Those companies will claim 32% of the rental market by next year, according to a new report by Adams Media Research. And that’s taking a big bite out of revenues studios collect from DVD and Blu-ray sales.

In the fourth quarter of last year, revenues for new DVDs and Blu-ray discs shipped to retailers fell 23% to $2.6 billion, Adams said. For the entire year, revenues for new releases fell 7.4% over 2007. However, rentals actually produced 5.5% more in revenue for retailers, meaning that total studio gross on new release titles was off by 5.3% for the year.

The numbers clearly don’t paint a bright future for the studios’ homevid divisions. But the studios are trying to find ways to make their DVDs and Blu-rays more attractive to consumers in buying mode.

Fox has decided to pull extras, like commentary tracks and featurettes, off discs it offers as rentals, beginning with pics like “Slumdog Millionaire,” starting this month. Other studios are expected to follow suit.

And studios can still be upbeat about the change in consumer behavior: Digital provides studios with higher profit margins.

According to Time Warner topper Jeff Bewkes, VOD rentals provide studios with a 70% higher yield than traditional rentals, while Blu-ray and iTunes sales contribute a 40% boost in margins over DVD sales. Studios traditionally earn a 60% profit margin from DVD sales.

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