Horror movie

The video hire sector has been attacked from all angles in the last five years. Recently the industry had been affected by increasing and more rapid penetration of households by the pay-TV market.

Various operators including Telstra and Optus are offering online ordering of DVDs, which are then posted to households for extended hire periods at significantly reduced prices compared to video stores (causing DVD hiring prices to decline).

On top of this, the industry continues to be affected by changes in alternate digital media technology, DVD piracy and increased competition by many other industries for a share of the entertainment and leisure expenditure of households.

The response of the industry to these trends has been to increase competition based on price and extended hire periods for new rentals and on other stock. Operators have also tried to increase promotions of their stores and of new releases, specifically by becoming involved in merchandise sales and competitions associated with the release of a big film.

Video rental stores have also diversified into increased sales and rentals of games and some have moved into supplying video rental and purchase self-serve kiosks, as well as online delivery of some movies.

But all this scrambling has meant little. IBISWorld estimates that over the five years to 2008-09, industry revenue will decrease at an annualised rate of 6.8%.

 The outlook for the industry is challenging and the rising trends in video piracy and competition from telecommunications companies offering film viewing and download services will severely put dents in industry revenue figures.

Over the five year period to 2013-14, industry revenue is expected to decrease at an average annual real rate of 3.4%. Over the same period, industry employment is expected to decrease, relating to the decline in industry revenue and profit.

Over the next few years, this industry is expected to continue to consolidate and decline, due mainly to technological changes. The rate of penetration of households by pay-TV will increase thanks to better programming, the offer of more channels and the fact Foxtel and Austar have upgraded their cable networks to digital format.

Mobile phone operators are also offering movie viewing, and even iPods can be used for downloads and podcasts.

Key success factors for operators in the industry

• Availability of car parking. Access to adequate parking for the convenience of the customer.
• Having contracts that are favourable to purchaser. Access to quantity purchase discounts.
• Superior financial management and debt management. Adequate cashflow management controls.
• Ability to control stock on hand. Adequate stock controls are in place in order to reduce inventory costs and increase stock turn/hirings.
• Proximity to key markets. Location; the store needs to be located where there is a high volume of passing traffic.
• Membership of an industry organisation. Membership of a buying or marketing group.
• Production of goods currently favoured by the market. The appropriate range and quantity of tapes are available for hire.
• Attractive product presentation. The store layout and display of stock must encourage customers to hire and reinforce the company image.

Products and service segmentation