Video store falls victim both to progress, recession

Once found on every Main Street and strip mall, traditional brick-and-mortar video stores are harder than ever to find, and their scarcity is expected to grow.

Less than a year ago, the top two players in the industry were Blockbuster and Hollywood Video. In February, Hollywood Video shut down, and Blockbuster is expected to file Chapter 11 bankruptcy as early as this month.

No matter how much people enjoy walking the aisles of video stores to seek out obscure titles, rough economic times coupled with new ways to deliver movies will likely lead to a slow bleed that is expected to follow the same path as the typewriter-repair shop.

In 2003, there were 25,042 establishments that focused primarily on DVD, video game and VHS rentals, and industry revenues were $11.9 billion according to IBIS World, a Los Angeles-based research firm. In 2010, the industry dropped to 17,369 stores with revenues of $7.8 billion. And five years from now, numbers are expected to drop even further.

"The two primary issues are convenience and price," said George VanHorn, senior analyst at IBIS World. "People are finding alternatives in other distribution channels so they don't have to go to the same types of retail stores they had to 10 years ago. As a result, we've seen the numbers drop eight years in a row."

Take Blockbuster for instance. The company has lost $1.1 billion since the start of 2008. It is trying to escape leases on 500 or more of its 3,425 stores in the United States, and in the past year, more than 1,000 Blockbuster stores have been closed.

In a nod to the success of video-rental kiosks offered by the company Redbox, Blockbuster has deployed about 6,000-branded vending machines that rent DVDs for $1 per night.

Hollywood film studios have tried to give video stores a break in their competition with online streaming and kiosks. For example, certain titles will be made available in stores 28 days before they're available in kiosks or through Netflix.

Netflix officials says that concession has made little impact on their rising success because the majority of their subscribers opt for older titles. With 11 straight years of earning growth, Netflix currently has more than 15 million subscribers.

Steve Swasey, vice president of corporate communications for Netflix, said that DVDs as we know them might be phased out in 20 years. Thousands of titles are available via streaming, which can be watched on video-game consoles such as Xbox 360, PS3, and Wii.

"We have more selections to our customers than anyone can watch in a lifetime," Swasey said. "We literally have something for everyone."

VanHorn says that the life span of video stores could ultimately be tied to the economic downturn. The economy has had an impact on the movie rental industry as a whole, and the costliest distribution channels are feeling the knife strike the deepest.

"In recent years, movie productions have been slower, and the proliferation of new content has been slowed down," VanHorn said. "With the addition of digital advantages, old business models need to change fast, and really there's only so much a brick and mortar store can do."

In the end, VanHorn expects to see the franchised rental stores fall away first, with the smaller operators lasting a bit longer.

"It's what those guys do, and they have a passion for it," VanHorn said. "They're the last ones to say they're done. It's just whether at the end passion is enough."