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Could video kiosks breathe life into European DVD rental sector?

After years of playing second fiddle to DVD retail, video rental could be set for a revival according to the latest research from media analysts Screen Digest. Strong growth in the online rental of DVDs and increasing demand for Blu-ray Disc rental is mitigating the relentless downward trend in traditional brick and mortar rental stores in both Europe and the US. But while European rental is still on a downward trajectory – Screen Digest expects spending to decline by 11% this year and by an average of 6% annually 2010-2013 – the company's US research arm Adams Media Research (AMR), says US rental spending will be stable or even slightly up this year and will maintain its value out to 2013.

A fundamental reason for this dramatic difference in outlook is the presence of a third area of growth specific to the US market: $1-a-night video rental kiosks. By the end of 2009, almost 25,500 of these recession-friendly automated rental points will have been installed around the US, the vast majority operated by Redbox, a division of Coinstar. Between them they will persuade US consumers to part with $830m in rental spending, an increase of over 70% on 2008 according to AMR, which expects spending through this channel to expand at an average of 15% a year by 2013.

Cash-strapped consumers looking for an affordable way to entertain the family may welcome this development, but Hollywood is less happy. In fact, studios believe that Redbox and its rivals are undermining their more lucrative retail DVD business – not only by offering cut-price rentals but also through the subsequent cheap sale of millions of 'previously-viewed' discs.

As a result, Universal, Fox and most recently Warner have all introduced rules restricting the sale of DVDs to kiosks for anything up to six weeks from their first release, sparking legal challenges from Redbox. Sony, Lionsgate and Paramount meanwhile have opted for an alternative strategy, signing deals with Redbox to ensure that their titles get top billing in the machines. Crucially however, both approaches specifically prohibit the sale of ex-rental discs.

Could kiosks get Europeans renting again?

The US tends to set international video trends, so could a similar phenomenon help stabilise rental spending in Europe? Screen Digest believes not. "The concept of rental kiosks was actually invented in Italy about 20 years ago", says Screen Digest Head of Video Helen Davis Jayalath, "and was quickly adopted across much of southern Europe. But unlike in the US, European kiosks tend to be operated by traditional rental stores and are seen as an extension of their business – they don't tend to compete so aggressively on price. And there are plenty of markets – including the UK – where despite regular attempts the idea has simply not taken off due to a combination of cultural and legal issues."

More importantly, however, adds Davis Jayalath, "We don't believe that rental is strong enough in any European territory these days to support a substantial $1 (or þ1 or £1)-a-night business." In 2008, the 100m DVD households in the US made almost 2.6bn DVD and BD rental transactions between them – an average of more than 25 per household per year. Meanwhile Europe's 135m DVD homes rented just 472m times – 3.5 times per household.

Widespread piracy (both physical DVDs and illegal downloading), a growing range of legal TV and internet-based video-on-demand services and, above all, the ever-lower cost of buying legitimate DVDs, have combined to ensure that DVD rental has become a minority pastime in Europe. Even in the US, Blockbuster recently welcomed studio moves to implement a window before kiosk release, telling analysts that "$1 per viewing is not a sustainable industry model." This is despite the fact that the rental chain is rolling out its own cut-price kiosks in partnership with self-service technology giant NCR.

Try-before-you-buy could boost Blu-ray rental

So, is rental really a spent force in Europe? There is one bright light on the horizon. Screen Digest believes that the hi-def Blu-ray Disc format could play a key role in the rental sector over the next few years. "Consumers who are considering upgrading to BD may be more inclined to do so if they can rent, as well as buy, the more expensive hi-def discs needed to make the most of it" says Screen Digest Senior Analyst Richard Cooper. "And by the end of this year there will be 11m European households who own a Sony PlayStation 3 games console – which is one of the best BD players out there. Rental, which is the ultimate 'try-before-you-buy' option, is a great way of persuading them to dip their toe in the Blu-ray water."

In fact, new research from the UK analyst indicates that European consumers could be spending as much as €461m ($648m) a year on renting the hi-def format by 2013. This is on top of the forecast €3.2bn ($4.5bn) they will be spending on buying movies and TV series on the hi-def discs, making the total European BD market in 2013 worth €3.7bn ($5.4bn) compared with DVD spending of €5.3bn ($7.8bn).

In the US, where rental remains a mainstream pursuit, BD could be worth over $5bn in consumer spending by 2013, with almost $10bn more being spent on buying the discs. There, the combined figure of $15bn is almost twice the amount Screen Digest expects US consumers to spend on buying and renting DVDs that year.

Story filed 09.09.09

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