As we reported, the rental market barometer for the week ending Monday, November 6 plunged to an unseasonal (even unseemly) low. The question remains "why?". We see three areas of concern, specifically ...

1. general market issues
2. title specific issues, especially Batman
3. retailer issues

Odds are, these are all related in some cosmic way, but it's a little easier to take them one at a time.

General Market Issues

The market is weak, and as such it is bouncing around from week to week. Literally, one week will be up; the next will be down. What we are seeing is volatility in each of the measures -- percent renting and tapes per. It used to be that percent renting was the key factor because the tapes per number was very steady. That's not what we're seeing right now. This indicates a lot of in-and-out activity by relatively "thin" consumer market that is being very picky about what they rent -- and not renting stuff they don't want to rent.

In the table below, we show three columns of market data -- weekly rentals, percent renting, and tapes per -- for weeks beginning 5 September through 6 November. The weeks with low active percent and low tapes per are highlighted. Note that this is the first time we had both low activity and low tapes per in the same week. Note that one bold cell is enough to make it a down week.

The Video Flash Third Quarter report will go into more detail on this, but the pattern looks far more secular than cyclical. Wall Street analysts have not been able to figure out what the impact is on store revenues and profits; some of them are whistling in the dark about how all this will go away. Even though total activity was down about 14 percent in the third quarter, the full impact on stores may not be felt until early next year when they don't have sell through to distract them!
 

Title Specific Issues

Same week last year Snow White had been in release 2 weeks. Snow White was both a strong renter and a strong seller. The head-to-head comparison is with Batman, which is turning in numbers significantly weaker than Snow White did. We are showing 1.6 million rental transactions in Batman's first week and about 900 thousand units purchased by consumers. This is good -- but its not enough to move the whole market. We would expect the first two weeks on Batman to show close to 4 million rentals (for the two week period) and close to 2 million units sold. Including our estimate for the units in the rental pipeline (at about 800 thousand -- preliminary estimate pending this week's numbers), the two week total purchases should be around 3 million -- 2mm to consumers and 0.8mm to the rental stores.

What's interesting is that this performance was not enough to energize the overall market. It may be that it is taking more and more to break through all the consumer clutter and get people's attention. Phrased alternatively, it may be that the kind of fragmentation that plagued the television markets and broke down viewership into hundreds of splinter channels is now affecting home video. Either way, it's apparent that it will take more to get a message across in this market today than the usual point of purchase displays -- especially since fewer people are in the stores to see the displays.

Retailer Issues

We have to look at the impact of Blockbuster on these market developments. The fact is, Blockbuster has been backpedalling from the rental market for some time -- maybe as much as 3 years. In general, this chain is buying more narrowly and in less depth than several years ago (although recently on some titles there has been a noticeable uptick). Over a three year period, for the market leader to treat the market that way is going to have an impact.

There are Blockbuster market share numbers in the Retail section of this site, suggesting a 16 percent rental transaction share over the first 6 months of 1995. We will soon run national market share estimates for the third quarter, which we believe will show that Blockbuster's leadership position has slipped significantly. That's why the growth of the new (ie, more competitive) chains was so significant for the overall market.

Summary and Conclusions