Movie renting’s grainy picture

The embattled video rental market has more hard times ahead as consumers continue to enjoy increasing entertainment choices. By JASON BAKER of IBISWorld.

By Jason Baker

Rising interest rates and higher living costs are spelling leaner times. But more fundamentally, the introduction of digital video recorder TiVo later this year, competition from general retailers and the internet are posing long term threats to the industry.

Recent industry performance

Video hire outlets in Australia generate $552 million each year. But revenue in this industry is expected to decline this year, due mainly to increased competition from general retailers moving into the DVD market and from new sources of entertainment provided on the internet and mobile phones.

Revenues in this sector have declined 5.8% annually on average over the past five years.

Growth has been checked by competition from retailers, pay-TV and a decline in the number of quality movies available for rent. Since 2004-05, internet downloading, online DVD ordering and the posting of television programs and movies online have become more widespread and are eating into the market for conventional video hire.

The introduction of TiVo technology to Australia (expected sometime in 2008) will also depress the potential for growth in the sector. TiVo is a brand of digital video recorder that enables viewers to pause high-definition TV programming, fast-forward through ads, record programming to hard disk storage and access broadband content such as video-on-demand.

It is also expected that higher interest rates, combined with higher petrol and food prices, will curb discretionary spending on entertainment.

Industry outlook

This industry will continue to soften over the next five years, declining by 4.1% annually on average. To maintain market share, major operators are expected to diversify into alternative services and products, such as cafes, DVD equipment and music CDs.

In the future, further technological advancement is anticipated to put further competitive pressure on conventional video rental businesses. More television channels and quality programming available on pay-TV, satellite-based pay-TV delivery and digital TV’s ability to offer multi-channelling will all encroach on the video rental market.

Smaller and medium sized operators will likely be affected by these trends more immediately. In the short term, operator profitability is expected to rely heavily on the sale and rental of DVDs and games. Employment prospects in this industry will decline as a consequence of the downturn in revenue growth and the pressures of consolidation.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au