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DVD rentals still a profitable business for the next few years

Reports of the demise of DVD are exaggerated if one goes by the assessment of Eric Wold, media specialist at investment bank B. Riley & Co. Taking a hard look at the profitability of various content distribution roads to market, Wold cautions investors that the DVD market is far from moribond, projecting that the physical rental market will generate around $5.3 billion in revenues this year.

"We continue to believe there is a large group of consumers that prefer and will continue to prefer renting DVDs or Blu-ray Discs for a number of understandable reasons: the large cost differential between DVDs and VOD, a lack of appropriate broadband access or a desire for the better quality and enhanced content of Blu-ray vs. downloads (i.e., alternative endings, additional features, etc.)," Wold wrote in a note to investors.

The analyst points out that Redbox currently is the dominant player in large part because, unlike Netflix's disc-by-mail service, Redbox customers obtain their disc immediately off the vending machine. "We believe the ability to get same-day discs at the kiosk (vs. waiting a day for Netflix delivery), along with the addition of unlimited streaming content could prove to be a motivating factor to get Netflix subscribers to cancel," Wold wrote.

A B. Riley & Co research estimates that $1 billion in revenue will come from high street video stores in 2013, with kiosks and mail-order disc services splitting $4.3 billion in revenue. According to L.A. Biz that reports the data, the research projects that "by 2017, video store revenue will drop to about $500 million in revenue, $1 billion for by-mail rentals, and $3.25 billion the remaining revenue generated by kiosks, primarily Redbox."

Wold is quoted as saying that Redbox "has the potential to gain 50% of the displaced rental transactions as physical stores close."

Story filed 01.04.13

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