More Than a Rental? Making the Video Store Make Sense

More Than a Rental? Making the Video Store Make Sense

Don’t underestimate the power of the video store in the game marketing chain. While many publishers overlook the marketing potential here, video game rentals generate about $800 million in revenues (Rentrak), and statistics show that about 54% of game renters use this channel to try titles before they buy. In fact, according to Bob Geistman, svp, Ingram Entertainment, the largest supplier of games to independent video stores, video rentals now make up 9% to 11% of rental revenue for most neighborhood shops. “And that probably could shoot to 15% over the next two years,” he says. The big question is how the game industry gets a share of that emerging market.

Many publishers remain leery over this channel because it hasn’t produced for them a clear and substantial revenue stream. Generally, publishers simply sell a limited number of games to the video stores, which then reap for themselves whatever revenues the rentals might bring. Likewise, there is no hard research demonstrating whether and how try-before-you-buy habits affect consumers’ purchase decisions.

In late 2002, Portland, Ore.-based video distributor Rentrak tried to address publishers’ misgivings with a revenue sharing model. Video retailers pay between $8 and $12.50 up front for a new game, then pass up to 50% of the rental fees back to Rentrak, the majority of which gets shared with the publisher. “We got into this crazy business because of our retailers,” says Chris Roberts, vp of sales. “They were frustrated by paying $43 to $45 a game.”

While the game maker gets much less up front for a title in this model, Rentrak has signed about 15 publishers already. The expectation is that video stores, which generally buy only five to seven titles a month, will carry a deeper library, while game providers might realize a bigger revenue stream from their blockbusters that get re-rented. Under revenue-sharing, “a lot of stores that would have passed on a given title are getting them,” says Roberts.

An attractive aspect of the revenue share model is it may open up the rental channel as an alternative or after-market marketing and revenue opportunity for a publisher’s mid-level games, offerings that suffered marginal reviews or limp retail marketing efforts.

The model is different for game publishers, counters Geistman. They must invest substantially more than movie companies into royalty and manufacturing payments, so it is harder for them to risk charging the video retailer less. “The economy of the video game market makes it very difficult for revenue sharing to work,” he says.

“It’s very much hit driven,” says Geistman, and because retailers are spending $40 to $50 a title, they have to be very selective about the titles they carry. This is one video game channel where distributors like Ingram carry a lot of influence in helping the video stores anticipate the likely moneymakers. “A lot of retailers put their trust in our salespeople,” he says.

Nevertheless, publishers are already learning to appreciate this channel as a potentially valuable marketing vehicle. Geistman says his top games for the next three months, Activision’s X-2: Wolverine’s Revenge, Infogrames’ Enter the Matrix, and Universal/ Vivendi’s The Hulk all have strong tie-ins with summer film blockbusters, and companies like Vivendi and Infogrames are working with Ingram to target the rental channel with co-marketing agreements and promotions. Meanwhile, sources say that Sony itself has suggested to publishers that it sees neighborhood video stores as an important way to reach the family market, what it considers the next tier of PS2 consumers.

One glaring omission in this segment is research, a reliable consumer study that demonstrates how rentals translate into purchase (or not-to-purchase) decisions. While costly and difficult to do right, this may be what it takes to convince publishers of the obvious: the video store network itself represents a massive opportunity to reach into people’s neighborhoods and get their attention when they are browsing for media entertainment.

Apparently, game publishers themselves are in try-before-they-buy mode.

Fast Facts

* Among independent video rental stores (non-chain), game rentals represented 4.2% of their overall rental receipts, about $14,000 per store per year. (Video Software Dealers Association)

* Average game rental price in 2003 is $4.55, up from $4.10 in 2002. (VSDA)

* 58% of youth gamers rent games, but on average they rent only one per year. Consumers cite price and the hassle of returns as the biggest barriers. (Zanthus Research)

* 54% of game renters says they want to see if a title is worth buying (Gigex Game Buyer Survey)

Contacts: Bob Geistman, 615/287-4763; Chris Roberts, 503/284-7581 x247

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