MacKayNet - Rob MacKay

This appeared in Supermarket News this morning. It's not exactly earth-shattering news, but it got my attention.

Findings from a new study from Lyra Research here question the widely held assumption that the increase of DVD sales has negatively impacted video rental activity, said the research company. "Flicks for Hire: A Video-Rental Survey" shows that people who own more DVDs also rent more DVDs. The report is based on a survey of video renters conducted in June and July. "We can construct obvious logical theories why consumers who own more DVDs would also rent more videos," said Steve Hoffenberg, principal analyst for the DTV View report series and Lyra Research's director of electronic media research. "For example, the more people like to watch videos, the more likely they are to both own and rent them. But such theories don't jibe with a commonly espoused assumption in the video rental industry that the dramatic growth in consumer purchases of prerecorded DVDs is the chief cause of this year's slump in video rentals. Our findings call into question whether DVD buying is indeed the primary factor reducing video rentals, and they suggest a more complex relationship between rentals and purchases."

I find it illogical that DVD sales are putting the damper on rentals. When you buy a DVD, you pay 3 to 5 times the cost of renting one. Presumably, this is because you like it enough that you plan on watching it over and over. This makes sense for children's videos and movies that you absolutely love, but that's been the case for years. We bought plenty of VHS tapes long before we owned a DVD player. Why would the advent of DVD's have a significantly greater impact on the propensity to buy versus rent a video?

Yes, there are those special features that appear on many DVD's and the picture quality is great, but it's still a movie. It still costs a lot more to buy it than it does to rent it, and face it, how many run-of-the-mill Hollywood products do you really want to see three times or more?

In our house, DVD purchases are virtually always in addition to our rental activity, not a substitute. The only exception is when we see something in the theater that we really love. In those cases, we'll often buy the DVD just to have it. Because of the quality and features. We might be slightly more motivated to buy the DVD today than we were the VHS version a few years, but that should be a benefit for the industry.

If the rental industry is broken, then why has NetFlix been so successful? And why is Wal-Mart getting in on the same business? Something doesn't add up.