DVDs Are Helping Independent Video Rental Stores Survive

Increased Rentals, Lower Wholesale Cost, and Higher Rental Rate Are Credited

ENCINO, Calif.--(BUSINESS WIRE)--Sept. 30, 2003--DVDs are not only buttressing the bottom lines of the Hollywood studios, they are also helping to increase the profitability of independent video rental stores, according to a study released today by the Video Software Dealers Association (VSDA). VSDA's 2003 Benchmarking Report shows that consumer demand for DVDs, the lower wholesale cost of DVDs, and the ability of video stores to charge slightly more for DVDs than VHS because of the added content of DVDs contributed to a 5% increase in average store net profits last year. The study surveyed more than 100 video stores in the U.S. and Canada, mainly single-store operations, and is based on data from operations in 2002.

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"In the late 1990s, many independent video stores were buffeted by the intense competition in the video rental industry," noted VSDA President Bo Andersen. "Then DVD came on the scene and was enthusiastically embraced by the American consumer as a product both to purchase and to rent. This report shows that the DVD phenomenon has allowed independent video stores to intensify and improve their competitive position."

The report relates that the number of videos (VHS cassettes and DVDs) rented last year by the typical respondent video store increased by approximately 6%, to more than 96,000. This growth is attributed solely to the explosion in DVD rentals, as the total number of VHS cassettes rented in the U.S. declined by 21% last year, according to VSDA's Research Department. In addition, the independent video stores surveyed experienced strong growth in sales of both new and previously viewed DVDs. Sales of new videos increased from 4.5% of a typical store's revenues to 7.5% in 2002. Sales of previously viewed videos increased from 5.6% to 6.4%. As in the rental market, DVDs were responsible for the bulk of this growth, according to VSDA.

Andersen stated that DVDs generally have a lower wholesale cost for retailers than VHS cassettes. DVDs are priced for consumer purchase, and many VHS cassettes are priced much higher during their initial release because they are targeted for the rental market.

The average rental price for a new release VHS cassette or DVD in 2002 at the typical store in the survey was $3.29, up from $3.05 in 2001. The average rental price for DVD was $3.37. According to Andersen, the higher rental price of DVDs is driven by the strong rental demand and the extra features that DVDs provide. "Because of its extra features and superior audio and video quality, DVD is a more robust product than a VHS cassette and remains a tremendous value," Andersen noted.

Other key findings of the report:

-- The typical store offers 8,720 different titles.

-- The typical store surveyed is open about 84 hours per week.

-- The typical store has approximately 5,000 active customers.

-- Extended viewing fees ("late fees") account for less than 11%

of total revenue of the typical store.

Established in 1981, the Video Software Dealers Association (VSDA) is the not-for-profit international trade association for the $20 billion home entertainment industry. VSDA represents more than 1,500 companies throughout the United States, Canada, and a dozen other countries. Its members operate more than 12,500 retail outlets in the U.S. that sell and/or rent DVDs, VHS cassettes, and console video games. Membership comprises the full spectrum of video retailers (from single-store operators to large chains), video distributors, the home video divisions of major and independent motion picture studios, and other related businesses that constitute and support the home video entertainment industry.