Adam Maguire

Below is the technology feature from a recent issue of Business & Finance magazine:

The financial difficulties facing Chartbusters is Ireland’s first solid sign of an international fact –the traditional video rental market is in trouble.

There are many potential reasons why this sector is in decline. DVD purchase prices have dropped while disposable income has – at least until recently – risen. Movie studios have narrowed the gap between the ‘to rent’ and ‘to buy’ release dates of films, while digital and even terrestrial television channels have been able to broadcast films months rather than years after they leave cinemas.

However there still seems to be some appetite amongst Irish consumers to rent DVDs – the problem facing Chartbusters and Xtra-vision, amongst others nationally and internationally, is that fewer want to do so in a physical outlet.

“The high street rental market is dying a slow death – it can’t compete with the rent-by-post model,” says Frank O’Grady, CEO of online rental company ScreenClick.com, which recently acquired its main Irish rival MovieStar.ie. “It accounts for a round 50% of the US market already and around 30% of the UK market, and Ireland is catching up.”

The ‘rent-by-post’ business model offered by the likes of ScreenClick.com is relatively simple. Customers sign up to a subscription package, which in ScreenClick.com’s case can cost between €8 and €32 per month. Depending on the package they are paying for they are able to rent between one and four DVDs at any one time and in many cases can rent an unlimited number of releases within a month.

Also there are no late fee customers will just not get their next rental until they post back their last. Most rental sites also allow customers to list a checklist of the DVDs they want to get at some point in order of preference. Ideally this allows the company to instantly ship their next most wanted DVD as soon as the last one returns; assuming it is in stock.

“Customers will get their top priority from us around 80% of the time and we encourage them to have at least their top ten films listed at all times,” says Mr. O’Grady.

In theory this means customers could watch a huge amount of films in any give month for just €32, assuming they could watch and return them quickly. Of course this happens the less they spend per rental and the less profit can be made. As a result of this many companies, including ScreenClick.com, operate a “fair use” policy which gives priority to lower volume customers potentially resulting in a slower turn-around of orders for those who rent a high number of DVDs per month.

According to Screenclick.com they post out around 70,000 DVDs per month and have in the region of 100,000 registered customers – although not all of these are active. The company also offers its services to companies like Eircom, An Post and The Irish Times which use their software, archives distribution structures as part of their own online rental services.

In February the company is due to launch a new partnership with a large computer manufacturer which could see it offer discount or even free computers when bought with Screenclick subscriptions – the new venture will see the company sell DVDs for the first time too.

However the old guard of the rental industry did see the threats facing them from DVD sales and online some time ago and have been moving to protect themselves from losses ever since. Xtra-vision, which is owned by international rental giant Blockbuster Entertainment, has actually been quite successful in its attempts to restructure the business while Chartbusters has clearly had a tougher time.

The Xtra-vision approach has been to move out of the suburbs and to bolster its presence in urban and high street locations. The company has tried to increase the floor space of the 160 outlets it has kept open in Ireland and now offers DVDs, music and games to-buy as well as mobile phone and gadgets such as iPods.

It is thought that the rental side of Xtra-vision’s business now accounts for just half its revenue. In fact, Xtra-vision’s turn around in recent years has been so impressive that its management team was sent across Europe three years ago to oversee a similar restructuring of Blockbuster’s international operations.

In both the US and UK Blockbuster has moved into the rent-by-post market to compete with its new rivals directly however there has been no indication made by Xtra-vision so far to suggest it would follow suit. In America Blockbuster is competing mainly with Netflix and is suffering badly as a result of sticking to its core rental business for too long. In Britain the main competition is LoveFilm.com, which happens to be the owner of Screenclick.com following an estimated €3m buy-out in 2006.

Of course DVD rental by post has its limitations – mainly the inability to cater for impulse rentals. Customers who realise at 8pm that there is nothing on TV cannot rely on companies like Screenclick to fill the void, as Mr. O’Grady himself is first to admit.

This gap may be where digital downloads come into the mix in the future. In Ireland at present the only rent-by-download films available legally are on the Xbox 360’s Live network and the selection is limited. Despite this does mean you can rent on an impulse and enjoy the product almost instantly – as long as your broadband connection is good.

Internationally Apple offer TV shows and movies to either rent or buy while even Blockbuster has recently starting rolling out its own download service. However it may be some time before equivalents of these becomes available on these shores.

“Video on demand is quite a distant problem for us – we don’t see it becoming a real proposition in Ireland for a few years yet,” said Mr. O’Grady. “That said it is something we’re looking at ourselves and we could have a small offering of films to download by the end of the year.”