Multimedia Reporting (Kuhr-Musser)

Local video stores have battled the online, through-the-mail DVD rental service Netflix since it opened in 1999. Since then, they have come up with several approaches to compete. The “brick and mortar” stores have used strategies from ending late fees to prepaying for flicks and monthly membership fees. One store even considers relying on the mail itself.

According to Hoovers.com, a website that provides sales information for several companies and industries, the online movie-rental powerhouse more than tripled its net income from $6.5 million to $21.5 million between 2003 and 2004. They nearly doubled up the next year by bumping up to $42.2 million by the end of 2005, Video Business Magazine said that Ingram Entertainment Inc. cut 4 percent of their workforce in the middle of February. IEI is the nation’s largest distributor of DVD hardware and software, and supplies rental chains including Miracle Video, Family Video, Hastings and Blockbuster. VBM added that Movie Gallery will reduce salaried and administrative office staff by about 300 positions, 17 percent of the staff, by the end of 2006.

“It’s no secret that the business has been flat, and I think all the distributors have been affected by the weakness in the business,” IEI president David Ingram said.

To be a member of Netflix, you pay a monthly fee. You get online and create a list of the movies you want to see in the order you want to see them. They have about 60,000 to pick from. They will send you the DVD’s you want to see, starting from the top of your list (shipping is free). The more movies you want out at one time, the more you pay per month. Netflix says their most popular plan allows you to have out up to three DVD’s out at a time and you can rent an unlimited number per month for $17.99. Once you receive your movies, you keep them as long as you want and then send them back in the prepaid envelope they came with. After you watch something, send it back, and they receive it, they’ll send you the next title on your list.

In January of 2005, both Blockbusters in Lawrence, which are privately owned, started a “no late fee” membership along with the other corporately owned stores across the nation. The membership was free to all customers. They stopped offering it this March. The no late fee concept was good, said Andy Rumsey, store manager at Blockbuster on 23rd Street and Lenexa senior. But the stores didn’t have the inventory to keep up with the demand he said.
“If a popular movie came out, everyone would rent it the first weekend and it might be checked out for two weeks,” Rumsey said.

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Craig Gerfen, owner of T & S Video Inc. in Tonganoxie, believed Blockbuster’s decision was poor.

“Anyone in industry knows no video store can get rid of late fees and be successful or profitable,” Gerfen said.

According to MSNmoney.com, overdue movies cost renters more than $1 billion a year.

Blockbuster turned to its Movie Pass, which is similar to Netflix in that you pay a monthly fee and can have out one or two movies at a time (depending on which package you buy) and have them out as long as you want. Rumsey said that as soon as they went to that method, profits didn’t increase, but customer traffic did. Couch Potato Video in Desoto also has a monthly subscription account with their “platinum membership.”

Gerfen says that Netflix’s platform is actually good for the video rental business, online or not, because it keeps people renting and leaves the door open for the brick and mortar stores.

“Overall it strengthens the industry because people are still renting other than doing ‘on demand’ and people are still getting the discs and keeping out of whole computer downloading,” Gerfen said.

Family Video opened their first Lawrence location on 19th and Massachusetts Street earlier this year. Before opening, they conducted a study that measured the outlook of video stores in division-one college towns. Jeremy Underwood, one of the managers at Lawrence’s Family Video, said that the study found that expanding to Lawrence made sense. Their version of a monthly membership costs $9.99 and entitles the owner to pay half price for an unlimited amount of rentals for the month. Nick Haaland, who also manages Lawrence’s Family Video, questioned Netflix’s method of no return dates.

“(It) might be nice, but how many times are you actually going to watch it?”

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Pre-paying is another strategy local stores have used to stay in the game. Movie Gallery’s “value card” allows a customer to buy a $24 gift certificate for $19.99, or a $65 gift card for $49.99. Gerfen’s store also offers his rendition of pre-pay with the “gold card,” which is $30 for a yearly membership and adds seven free rentals to your account. It also allows customers to reserve movies among other perks.

Local video store managers say they have two advantages over Netflix: convenience and customer service.

“You actually have one-on-one help, and you don’t have to wait for the mail,” said Sherry Morris, manager at the Movie Gallery on 6th Street. She said that her store often receives new releases the weekend before they come out to rent. This allows employees to take them home and watch them and then give advice to any customer that has questions about a title.

Chris Jones, who manages Hastings in Lawrence, agreed convenience is important. He added that by actually going in a store, customers could not only get advice from employees but could buy concessions as well.

“We have people come in just to visit, socialize and spend time in the store,” he said.

Gerfen concurred.

“If you’re sitting on the couch with your wife and say “Honey, let’s go rent a movie,’ you can do that instead of waiting for the mail,” he said.

Gerfen hasn’t ruled out using the mail to his advantage. While still in its initial stages, he’s considered including prepaid envelopes with his rentals so after customers have checked out their selection in the store, they can return it by dropping it in the mail. The pre-printing stage has involved speaking with the postmaster and getting the artwork approved, but he is still looking at how cost-effective the program would be, considering replacement costs for films lost in the mail and membership fees.

“It just always comes down to a lot of money.”