STUDY FINDS RENTALS ARE STRONG DESPITE WEAKER REVENUES

DAN ALAIMO

MARINA DEL REY, Calif. -- The fundamentals of video rental are sound despite a 4.2% drop in revenues last year, according to a major consumer study by Yankelovich Partners, Norwalk, Conn., released here during the Video Software Dealers Association Regional Leaders Conference.

Contrary to what many retailers believe, the study indicated that little of the decline is attributable to cannibalization by competing entertainment formats, including sell-through video.

The study was commissioned by the VSDA, based in Encino, Calif., and is the first step that will lead to a video industry promotional campaign to be spearheaded by the video dealers organization. Research for the study was based upon a poll of 1,807 U.S. consumers over 18 years of age with a VCR in their households. Interviews were conducted between Nov. 7 and 25 last year. The results were unveiled late last month.

"The bottom line is, renting a video is still a very popular activity," said Robert Liuag, the VSDA's director of research.

The survey disproves the theory that different forms of entertainment take revenues away from others, he said. For example, the growth in the theatrical box office and the sell-through market have not cannibalized video rentals. "There are entertainment consumers who consume all forms of entertainment to varying degrees," he said.

The study showed that, of consumers who said they were purchasing videos more frequently during 1997, 73% were also renting as frequently or more frequently. A quarter said they rented videos less frequently. Similar numbers were reported for consumers who said they were going to movie theaters more often last year. About one-third of cable pay-per-view purchasers were also high-frequency renters, the study noted.

However, direct broadcast satellite technology is taking a bite out of the rental market and may be responsible for last year's decline, the report said. This is especially true in rural areas. Maintaining an advantage in pay-per-view windows will be crucial to the industry's efforts to compete with DBS, the report said.

In a finding that bodes well for supermarkets operating in the video rental sector, the study identified the components of a video retail operation most desired by consumers. The top three characteristics listed by the study were:

Well-organized, so videos are easy for consumers to find.

Conveniently located near home or office.

Clean and well-lit.

"Most supermarkets meet most of the characteristics that people are looking for in a video specialty store," said Liuag. "So they are already ahead of the game."

The study detailed the behavior of coveted high-frequency renters. For example, they are more likely than other renters to look for discounts and bonuses on weekday evenings, the opportunity to buy movies as well as rent them and the availability of video game rentals. But these consumers also look for selection and new release availability, and they are willing to go elsewhere to find it.

The study also segmented various demographic groups in terms of their video consumption. For example, "Voracious Viewers" and "Hi Fi Bachelors" are most likely to be high-frequency renters, while "Cultured Ladies" and "Disinterested Gentlemen" are less involved with video as well as with other forms of entertainment. "SUV [sport utility vehicle] Suburbanites" are above-average consumers of rental and sell-through videos, but moderate consumers of other entertainment.

The VSDA and Yankelovich will follow up on the report with a second survey in the second quarter and will ultimately lead up to the development of the Video Industry Promotion program, akin to such efforts as the "Get Milk" campaign, said Liuag. "The research serves as a guideline and a foundation for that program." The VSDA will work with the studios to develop marketing materials, he said.

Buying and Renting

Of consumers who reported purchasing more videos in 1997, a majority said they were either renting as often or more often, according to VSDA's new research study.

Sell-Through Customers Remain Strong Rental Customers

Rented videos less frequently 25.5%

Not sure 1.4%

Rented videos more frequently 40.8%

Rented videos as frequently 32.3%

Source: The 1998 Yankelovich/VSDA Home Entertainment Study