Video rental industry adjusts to consumer demands

Jason Francis selected two movies last week from a Redbox vending machine at the Walgreens on Broad Street.

He said he switched from Blockbuster to Redbox about a year ago.

"Really (it's) for the simplicity," said Mr. Francis, 40, a Lookout Mountain resident. "It's always available, and for the cost as well."

At $1 a title, the cost may be the No. 1 reason Redbox has become the first source of movie rentals for many consumers. The video vending company now has 20 locations in the Chattanooga area.

Traditional brick-and-mortar stores such as Blockbuster have felt the impact from new trends in video rental such as 24-hour Redbox vending machines as well as the growing popularity of online and subscription rental companies such as Netflix.

The growing popularity of alternative forms of video rental has caused Blockbuster to branch out with some of the same services offered by other companies, said Grace Lee, spokeswoman for the Entertainment Merchant Association.

"Competition and the economy are impacting all businesses in a variety of ways," Ms. Lee said. "Blockbuster also is branching out into branded vending machines and now offers a subscription service."

Blockbuster did not return calls seeking comment.

The video rental giant announced in September that it would close as many as 960 stores by the end of the year, including the location in Highland Plaza, 3901 Hixson Pike, Suite 109.

Ms. Lee said Blockbuster in undergoing plans to install 3,000 Blockbuster Express kiosks in the U.S. by the end of 2009.

It is unclear if any of the kiosks will be located in the Chattanooga area.

Dr. Bruce Hutchinson, economics professor at the University of Tennessee at Chattanooga, said Netflix and Redbox are both less expensive than Blockbuster and are more convenient.

"One has to wonder how much longer the Blockbuster approach can work," he said.

One drawback to Redbox is a lack of title selections, but Dr. Hutchinson believes that is only a temporary problem as technology evolves that will eventually allow the vending machines to burn any movie title on the spot.

According to the Entertainment Merchant Association's 2009 annual report, Blockbuster is testing technology in a small market that allows consumers to download titles to a portable media device.

Still, while vending machines and subscription services are gaining popularity, brick-and-mortar rentals make up the bulk of the rental business, which Ms. Lee said is up this year despite the sagging economy.

"Since the advent of prerecorded videos, rental has been a popular option for consumers and consumers continue to embrace it," she said. "Video rental stores will innovate, as they always have, to meet consumer demands."