Posted by Black Locust on 09/18/05 08:13

Sinking Subs?
Author: ERIK GRUENWEDEL
egruenwedel@questex.com
Posted: September 8, 2005


As Netflix and rival Blockbuster Online amass collective subscriber
bases approaching 5 million members, adoption of the subscription model
by the rest of industry would appear to be negligible.
Walmart.com sold its once promising subscription service to Netflix, and
separate forays from Hastings Entertainment (in-store) and Movie Gallery
(online and in-store) came and went. Gallery subsidiary Hollywood Video
continues to maintain an in-store subscription service.
In a survey of 225 independent video retailers, Home Media Research
found 12 percent offered subscription programs compared to 41 percent
that offered frequent renter rewards.
Among independent video retailers contacted for this story, just two
offered a subscription service. Only one liked it.
With three locations in Massachusetts, Superstar Video launched an
in-store service before Blockbuster and Netflix only to see its top
customers¹ monthly expenditures drop from $100 to $20.
³You can imagine it is not our favorite promotion,² said owner Jon
Cinelli, who said he has continued the program in one store for those
customers who ask for it.
Hollywood Express, which has four stores and is located near
Massachusetts Institute of Technology, initiated a survey with the Sloan
School of Management and found that the majority of its customers were
not interested in subscriptions.
New York-based Champagne Video, like many retailers, prefers pre-paid
rental packages, coupons and other promotions to subscriptions.
³We do not see the positives [of subscriptions] other than competing
with Big Blue,² owner Marc Oringer said.
Todd Zaganiacz, owner of Video Zone in South Deerfield, Mass., and head
of the National Entertainment Buying Group, a consortium of 100
independent retailers across the country, said the number of member
retailers offering in-store subscription plans was small, representing
less than 5 percent of the buying group.
³For some that have tested it, they have found it has turned more of
their higher paying customers into [lower paying] subscription customers
than turning lower paying customers into subscription customers,²
Zaganiacz said. ³Unless I can encourage those consumers that spend $5
per month to spend $10, it isn¹t going to work.²
Bucking the trend, however, is Cinefile Video. The Los Angeles store
offers two, three or five titles out at a time for $25, $30, $40 per
month, respectively. Of course, it helps to offer an eclectic film
catalog of silent films and foreign fare for which film aficionados are
willing to pay top dollar.
³We are pulling a greater amount of money per day than we ever were
before,² manager Robert Silvey said. ³On average, we have about 15
renewals per day at minimum $25 per renewal.²
Web wars
With Blockbuster Online and Netflix both offering one-out plans for
$9.99 per month, analyst Michael Pachter of Wedbush Morgan Securities in
Los Angeles, said the online subscription model would soon implode.
With a $4 margin on the $9.99 plan, Pachter said, Netflix and
Blockbuster need almost twice as many customers to reach the same profit
of the $17.99 price, with a $7 margin. ³If I am the average Joe who
rents once a week, $18 is kind of a push for me,² Pachter said. ³But $10
is a compelling value for me. Yet they aren¹t making money from me if I
am renting four times a month.
³I think [Blockbuster and Netflix] will bloody each other until one of
them gives up,² Pachter said. ³I think you will see a surge in online
subscribers at this [$9.99] price point, and then I think it is going to
crush everybody.²
Blockbuster spokesperson Randy Hargrove said the $9.99 price is just one
option Big Blue offers consumers in addition to two- and three-title
plans, in-store Movie Pass and termination of late fees.
³We now have approximately 20 percent of the online rental customer
base,² Hargrove said. ³Based on all the industry data we are seeing, we
believe we have clearly increased our share of the in-store rental
market.²
He said the company continues to see increased revenue from online
subscribers who also come into the stores driving incremental revenue.
³If you add the revenues we generated with our online service, domestic
same-store rental revenues were up more than 11 percent [in the second
quarter],² Hargrove said. One Blockbuster franchisee, who wished to
remain anonymous, disputed the benefits of the in-store subscription
plan, arguing that the average consumer basket (movies, games, popcorn
etc.) has shrunk since inception of subscriptions.
³The idea with the in-store movie pass was the consumer would buy
popcorn, candy or a previously rented DVD,² the owner said. ³This is not
the case. Not only did the consumer exchange his rentals without buying
anything, the typical consumer would exchange his films once a day.²
Pachter said in-store subscribers are spending about $5 a month on
merchandise, which he agreed wasn¹t a lot in the aggregate if they
visited the store a lot.
³Blockbuster is doing this not to make money,² Pachter said. ³They are
doing this to keep from losing money.²

http://www.homemediaretailing.com/news/html/breaking_article.cfm?article_
id=7976
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"Our enemies are innovative and resourceful, and so are we.
They never stop thinking about new ways to harm our country and our people,
and neither do we." - George Dumbya Bush

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