Subscription rentals take off, Hollywood Video says

04/07/09

A new movie subscription plan offered by struggling Hollywood Video is gathering momentum in the Sacramento region, the company says. "We've sold close to 400 to 500 (subscriptions) per store in that area in less than three weeks," said Sherif Mityas, chief executive officer of Movie Gallery Inc., the parent company of Hollywood Video. The Portland-area firm owns about 40 Hollywood Video stores and six Game Crazy stores in the Sacramento area, one of the rental chain's top 20 North American markets. Starting at $8, the so-called "PowerPlay" subscription plan allows a minimum of three new-release DVD rentals a month. Nationwide, the chain said it has sold 600,000 of its new subscription plans. PowerPlay locks in these rental prices for subscribers: new releases for $3, Blu-ray rentals for $4 and game rentals for $5. The number of rentals per month at those prices varies, based on the subscription plan. The plan, which Hollywood claims is the most affordable in the video rental industry, has no late fees or due dates, except for video games. Mityas said key markets like the Sacramento region are essential to the 3,300-store chain's profitability. The company, which Mityas said is on "very solid financial footing" after emerging last year from Chapter 11 bankruptcy reorganization, is vying to compete amid popular online subscription services and Internet downloads. "We're not going to be a Netflix me-too," said Mityas, who became CEO in March. Of the 8 billion U.S. movie rentals yearly, 5.5 billion are still from walk-in retail outlets, Mityas said. A few years ago, the rise of competitors such as Los Gatos-based Netflix, the online movie subscription giant, sent traditional video stores into a tailspin. Hollywood Video's parent company filed Chapter 11 in 2007. The company's new subscription plan is partly based on a recent survey indicating that about half of movie-renting adults still prefer to rent from brick-and-mortar stores. The Opinion Research Corp. survey also found that four out of 10 people who have an online movie subscription service say it's inconvenient and restrictive. But industry watchers say it's still an uphill struggle for the rental movie market. Video stores will continue to close as the brick-and-mortar market weakens, according to a Morningstar stock analyst who tracks Netflix. "That will absolutely accelerate," said Morningstar's Larry Witt. Selecting a video from a store shelf is proving not as important as other factors, at least for "early adopters" who easily embrace technical advances, Witt said. Netflix jumped from 6.2 million subscribers two years ago to 9.2 million by the end of 2008, he said. To compete, video stores will need some kind of hybrid rental model, he said. Blockbuster, the video-store leader, recently announced a deal with TiVo that will offer the store's videos through the digital recorder set-top boxes later this year.