Does anyone know much about the economics of DVD rentals? For example, what price to places like Rogers or Blockbuster pay for DVDs?

I remember back in the early days of VHS rentals, maybe the mid-1970s, a common model of pricing was that the price to rent was a percentage of the retail price of the movie. I think it was 5% of the retail price. I think the typical rental period was one week.

I remember the purchase prices of some movies on VHS being in the $80-$100range. (Remarkable, isn't it, given that those were 197x dollars.)

It seems to me that new-release DVDs now retail in the range of $20-$25, yet places like Rogers and BB rent these out for 20% to 25% of the retail price. I suspect DVDs have a much longer usable life than a VHS tape had.

It seems to me that the DVD rental business ought to be pretty lucrative. Or maybe the old VHS rental business was not lucrative at all.

While I'm asking these questions, does anyone know whether DVD rental places pay a discounted price for DVDs due to volume purchasing? Or maybe they pay a higher price due to having to buy discs that are licensed for rental?

It appears to me that they are renting out DVDs that are the same as retail purchase versions, so I would think they are renting out the same versions you and I might buy in a store.

Gee I took Economics and I worked for Canada's Largest DVD wholesaler for a few years running IT so let me see if I can help out!

For example, what price to places like Rogers or Blockbuster pay for DVDs?

Pretty much what every other retailer pays. Markup on new release is essentially zero. Markup on Catalog might be 30 points.

Companies get a kickback from studios at the end of the year depending on volume (similar to the car business)


I remember the purchase prices of some movies on VHS being in the $80-$100range.


In VHS, they use to have rental prices and sell through prices. At first everything was rental but that changed over the years.

Near the end it was rental price for a few weeks and then changed to a sell through price.

The studios tried the rental price then sellthrough price with DVD, but Walmart said if they tried it they would not carry DVD's from the studio. Result was only sell through pricing on DVD.

While I'm asking these questions, does anyone know whether DVD rental places pay a discounted price for DVDs due to volume purchasing? Or maybe they pay a higher price due to having to buy discs that are licensed for rental?

Studios don't care if you rent em or sell em. They give volume discounts as mentioned above on how many you buy. Incredibly a very large percentage of DVDs go unsold and are shipped back to the studio. Its very cheap for the studio to produce millions (the big cost is shipping and returns not the duplication) so they send lots out and then take back lots of returns.

We used to process returns by the pallet everyday.

so I would think they are renting out the same versions you and I might buy in a store.


Yes.


After 30 days, rentals go stale so it really depends on how many times they rent out. Frankly overhead, marketing, salaries etc are a huge cost and most stores won't make money today on rentals. Essentially you try to break even on rentals and then make your profit on selling the previously viewed DVDs.

There is a rental program called Rentrak that is used by some independents, where rentrak buys the product and then gives it to the store and they share the revenues but Rentrak pays what everyone else does for DVDs.

"suspect DVDs have a much longer usable life than a VHS tape had.


Umm..have you rented many DVD's?. The amount of skipping, scratches and plain unplayable disks I get from the rental chains is just criminal! In VHS days it was pretty rare to get a tape that was stuck or in tatters.

I'm probably getting 10 DVDs or so each month. (Rogers Video Direct) In the past few months I've only had one that was so bad that I had to return it for a replacement.

I was told at BB that the some rental DVD's have to be resurfaced after only 10 rentals. Some people must think you can still play frisbee with them!

One store owner that I spoke bought a resurfacing machine for that reason. Scratched discs are definitely an issue but they are part of the overhead costs that reduce profitability.

The DVD rental business is a tough one hence why so many have left the field.

Hugh's comments on volume and production are interesting.

I think there is probably way too much volume out there since there are so many good bargains to be found. It seems like new releases are more expensive these days: typically around $25 where just a few years ago they were available for $17-$22.

Now if you skip over the new releases and look in the bargain bins at Walmart or Superstore there are lot's of good deals (new) in the $4-$10 range. Mostly older titles, but there are a few good ones. For $4, that's cheaper than a rental. Or at Walmart they sell those double features for $9.99. Triple features for $12-$17.

Also I've picked up 4 previously viewed titles from Blockbuster (each $10). They looked a little scratched but all 4 played perfectly without a single skip or breakup.

I too remember as a kid when VHS rentals first came out. Purchasing them was almost unheard of and yes if you wanted to do that it would cost upwards of $100. I remember the one that changed everything and started the whole "movies to own" business was Batman. The one with Michael Keaton and Jack Nicholas. It was mass-marketed on a buy to own basis for a reasonable cost.

"

Umm..have you rented many DVD's?. The amount of skipping, scratches and plain unplayable disks I get from the rental chains is just criminal! In VHS days it was pretty rare to get a tape that was stuck or in tatters.
I rent 2 to to 3 dvds a month... Only once in about 2 years did I have a skipping problem due to scratches/fingerprints on the dvd. Since then I make it a point to wet a paper towel and wipe a rented dvd (from the spindle outwards) to make sure all fingerprints are removed before I insert the disk to the player.

I saw that the market for CDs is dropping like a rock (18% last year). This is due to easier and cheaper ways to access music. I would think DVD sales is a few years behind this curve so at some point in the near future the economics of DVD rentals will make it harder to be in the DVD rental business...at least from a storefront.

Up to now, I only rent HD DVD movies from Zip, 5 movies per month at a cost of $20.09/month (taxe in) which comes to $4.02 per disc.

Had 2 HD DVD which caused a freeze in the player, they were "The Hulk" and "Superman, the Movie". In both cases Zip sent me a replacement of the same movies, which played back without any problem, and the last time they even added a bonus movie to compensate.

To purchase in this monthly quantity would cost between $125 and $150 per month (plus taxes).

Based on your comment, I've also just joined Zip.ca and have received 2 HD DVD's so far. Delivery time is only 2 days from Ottawa to Montreal !(Shipped on July 30 and received today, Aug 1). Are you aware of anywhere else in the Montreal area that you can rent Hd DVD's. besides Blockbuster. The selection at my local store on the West Island is pretty lomited and not improving.
Thanks !

I would try "Super Club Videotron".

Thanks for the tip. A great selection including "300" and "Hot Fuzz" !
Thanks again !

The studios tried the rental price then sellthrough price with DVD, but Walmart said if they tried it they would not carry DVD's from the studio. Result was only sell through pricing on DVD.

If I remember correctly, if was Warren Lieberfarb (I know.. mispelt) of Warner Bros. that really pushed the low DVD purchase price. It was impossible to have a rental window pricing because there was no rental demand. Warren L was a heavy promoter of DVD and is often called the father of DVD by many. I bought "Blade Runner" for $30 when DVD just started. Then Divx came along and pushing a rental window pricing then would've been deadly for DVD.

Walmart didn't give DVD the time of day until years later.

I know a bit about this biz. The model has changed considerably since the video days. Nowadays the studios use a revenue share model with the rental companies.

In the US, the studios would provide the DVD free of charge and take a cut of the revenues. Every studio has a different program, but the agreements I looked at was free disc and rev share of 30-50%. Some have a minimum ($1 if I recall correctly). Some allowed the rental companies to sell the used discs and keep the cash, others got a chunk of the proceeds, and I believe one or two required the discs to either be returned or evidence of destruction. The discs were definitely free and that is why you walk into a video store and see 100 copies of new releases.

In Canada, the studios had the same revenue share agreement, but dinged the rental company anywhere from $2 to $8 a disc up front. Typical "Let's bone the Canadians".

I read some information from Netflix filings. Average customer rented 6 DVDs a month. They would rent a DVD 12-13 times then replace it.

All this data is from mid-2004. Things may have changed since then.

I have never heard or resurfacing DVDs. I question the economics of that unless the resurfacing machine costs under $100. Each DVD costs about 80 cents to duplicate, with approximately 25% of that going towards the various patent holders for the technology (including half a cent for the DVD case). Like a previous poster mentioned, the cost is in the packaging and S&H. That brings the cost up to about $1.80-$2.00 IIRC. Now you see why you find cheap DVDs in the bins. The marginal revenue for the studios is huge and they don't want to sit on their catalogs and not have then generate $$$.


coldcanuck

Nowadays the studios use a revenue share model with the rental companies.

Its called Rentrak but its only a small portion of rentals

Nowadays the studios use a revenue share model with the rental companies. In the US, the studios would provide the DVD free of charge and take a cut of the revenues.

This is absolutely nothing new. Years ago when Blockbuster had their "guaranteed rental" program, that was it. They were able to get an insane amount of copies of a given title for free or dirt cheap and share rental revenue.

DVD wasn't even part of that picture then.

I dont understand why ppl go to Rogers or Blockbuster. IF you look hard enough im sure youll find a locally owned independent video store in your town. I have one down the street. I pay $60 for 20 DVD rentals pre-paid card. Then I just go on 2 for 1 day and they only mark down 1 rental. That works out to 40 movies for 60 dollars. I think there going to stop me soon cause they realize im only showing up on 2 for 1 day and takin full advantage. :D

Anyways most independant video stores charge $3.50 a rental compared to what $5.50 at blockbuster and rogers? Also most have a 2 for 1 day.

I agree with westcoastinc in some markets. When I lived in Vancouver's Kits area I could go to a place called Videomatica. They had a great selection of DVDs, not the high-volume-only that I have experienced with Blockbusteres and Rogers.

And Videomatica ordered their own DVDs. When I asked someone at Blockbusters in Port Coquitlam to order a replacement for a DVD they had lost, he told me they were not permitted to order DVDs. They stocked what they were sent.

But many of us live in small communities. There isn't much of a local choice for DVDs in Cowichan Bay. :)

I also use zip, been very happy with the service. I end up driving down the cost of rental with the 3 DVD Unlimited, mixing standard def and HD DVD titles. Last Month alone I rented 20+... really drives the per unit rental price. I pay with VISA... and am a member of their star network plan... which saves me 10%.