Rental chains test new plans in Reno

By: Casey O'Lear

Monday, April 19, 2010 - 1:45 AM

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Redbox and Blockbuster are two video game rental companies that are using Reno to test new products and services. Brian Bolton/Nevada Sagebrush.

In recent years, movie rental companies such as Blockbuster and Redbox have been trying new ways to generate revenue and combat the economic downturn — and they’re using Reno as the testing ground for their newest approaches. This access to new features and services before they enter the nationwide market gives Reno the unique opportunity to affect change in the video rental industry.

The changing industry

A combination of factors have taken a toll on movie renting in recent years. Competition from online organizations such as Netflix, as well as online streaming and capabilities to download movies, has decreased business to video rental stores like Blockbuster and Hollywood Video. Additionally, the economic recession has left consumers with less disposable income to spend on entertainment, which has had a devastating impact on the moving industry. In January, Movie Gallery Inc. — the company which owns Hollywood Video — announced that it could be closing as many as 1,000 of its 2,700 stores in the United States. During the last fiscal year, Movie Gallery’s profit margin decreased by 27.4 percent.

To keep itself from facing a similar fate, Blockbuster has transitioned into providing varied online, in-store and on-demand services. Blockbuster also engineered a unique design for new Blockbuster Media stores that will offer customers an all-encompassing experience. The media stores are being tested and observed closely by the company in Reno before the corporate leaders determine that they are ready to enter the nationwide market. Rather than focusing on video rentals for its sole source of income, Blockbuster aims to establish itself as a one-stop shop for entertainment, incorporating movie theater-like concession stands and video game demonstrations akin to Best Buy’s setup.

“We’re more than just a brick-and-mortar business,” Michelle Metzger, a spokeswoman for Blockbuster, said. “Those stores that focus on one channel for media consumption are not the best recession-proof. There are a lot of shifts in the marketplace right now, and we’re poised to capitalize on that.”

Metzger said Blockbuster is not principally concerned with competition from online movie-viewing sources like Netflix because of the many different features that Blockbuster offers customers.

“We focus on hot new releases,” she said. “Eighty percent of our business is people who like to see new movies. If someone wants to see ‘The Blind Side’ or ‘Sherlock Holmes,’ we had that the day it came out. We also don’t require a queue. You need to set up your account once, and then you can access everything directly from your TV remote. Whatever channel — digitally on your TV at home, at the store down the street — we’re committed to being there.”

Redbox, a relatively new business in video renting, was established in 2003 and, due to its unique approach, has found a niche in the market. Redbox is a subsidiary of Coinstar that uses interactive kiosks to vend DVDs, Blu-ray discs and, in Reno, video games. Redbox rentals cost $1 per day and are convenient for customers because discs can be rented and returned to any kiosk at their leisure. In August, Redbox began offering video game rentals for $2 per day in only two markets: Reno and Wilmington, N.C.

Why Reno?

The information gathered from the testing sites in Reno will be used to determine whether these endeavors will be worth carrying over into other markets. If Reno customers use the new Blockbuster and Redbox options, they may be deemed successful enough to enter other communities around the nation.

“One thing that’s important in a test market is that it’s a representative sample of the population,” said Mark Pingle, a University of Nevada, Reno economics professor. “Whoever’s choosing thinks that this market represents all markets overall.”

Reno was chosen as a testing market for new services for a number of different reasons, Chris Goodrich, a spokesman for Redbox, said. One of the most notable is that the market is easy for companies to monitor. The market in Reno is contained and does not have a lot of transience, which happens when a customer rents a video at one location and returns it in a different market. This makes tracking the data much easier for the companies who will decide if video game rentals are worth pursuing in other markets, he said.

“We’re always looking at new ways to bring value to the customers,” Goodrich said. “We give out a lot of surveys, and we’ve been getting feedback from customers saying that they want to do more business with us.”

Pingle compares the Blockbuster and Redbox testing market to that of textbooks in big states such as California and Texas that drive the textbook market because of their large student populations. When a new textbook is tested, it is often done in a state that provides a sufficient amount of data.

“Maybe it’s like that in Nevada, or Northern Nevada,” he said. “Maybe people look at more movies here.”

Metzger said Blockbuster determines where to test new features on a case-by-case basis.

“We’ve done quite a few test stores in the Dallas area and some successful ones in Reno,” she said. “We look for a place that will give us good test data because it’s more media-isolated so we can get consumer data with less outside influences. We also look for somewhere we can get the most bang for our buck. Stores with higher traffic will get the most investment from corporate.”

Another factor that contributes to the choice of Reno as a testing market is the number of Blockbuster and Redbox locations already present. There are nine Blockbusters and 65 Redboxes in the Reno/Sparks area. Many of the Redbox locations are within well-known partner companies, such as grocery and convenience stores.

“Redbox started at a McDonald’s drive-thru as a way to drive more traffic to the restaurant,” Goodrich said. “Most of them are located where consumers are already shopping. It’s based on two primary factors: convenience and value. The movies are $1 per night, which puts the power in the consumer’s hands. You’re able to decide how much you want to pay. You can rent in one location and return it to another.”

When factors like a strong market and numerous retailers combine to paint Reno as the perfect testing ground for new products and services, the city is put in a position to make a difference in the video rental industry.

Casey O’Lear can be reached at colear@nevadasagebrush.com.