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Blockbuster: Fighting The Rental Blues

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Can the video industry get happy again? That’s the $7 billion question hanging on Blockbuster Video’s current marketing campaign. If you’ve seen its “Go Home Happy” ads, you know the nation’s largest video chain is trying to boost its rental business. But watching the chronically depressed Richard Lewis snag his cassette of choice, then congratulate Blockbuster for stocking “more of the movies you actually want,” you may miss the subtext. “Go Home Happy” isn’t just a slogan for consumers. It’s also a mantra for execs who’ve known sleepless nights since the rental market stalled late in 1996.

A 20-year-old industry accustomed to steady growth, video is still a huge moneymaker. Even with 1997 rental revenues down 4.2 percent from 1996, that’s $7.38 billion — about $1 billion more than 1997’s heralded box office (and some analysts put the rental total much higher, at about $9 billion). Add another $8.4 billion in tape sales (a 6.3 percent rise from 1996), and there’s no reason to think the recent blues will kill video retailing anytime soon, despite assaults from pay per view, Internet catalogs, and DVD.

But for Blockbuster, with 4,000 stores and a quarter of the rental market, 1997 was a historic low point. By the time John Antioco took the helm in July as Blockbuster’s third CEO in two years, he had to get scrappy before we could get happy. One of Antioco’s first goals was to meet the opening-week demand for hit movies. But he didn’t want to pay the typical $65 per rental cassette. His solution: Give the studios a piece of the rental action in exchange for their selling additional cassettes to the chain at a huge discount.

Tests of these shelf-packing initiatives began in the fall, and even now that they’re being implemented nationwide, Blockbuster and the studios are tight-lipped on details. Buena Vista enlisted, which could mean up to 40 percent more copies of G.I. Jane and Hercules; Warner and ColumbiaTriStar responded with a bonus plan on volume orders as an alternative; Fox and Universal are reportedly in negotiations.

Whether or not revenue sharing boosts rentals, it has already stirred the industry. Blockbuster and rival Hollywood Video (which is pursuing revenue sharing for its 944 outlets) are in a price war that has brought new releases down to $1.99 in a few cities; older titles are renting for as low as 99 cents. And in selected markets, Blockbuster is evaluating longer rental periods, early return discounts, and courtesy phones, among other amenities. What else could video customers need? Perhaps just a few more irresistible new movies.

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