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Rental DVDs edging out tapes

Blockbuster will take a $450-million charge to devote additional store space to the more profitable video discs.

©Washington Post

© St. Petersburg Times,
published September 11, 2001

In a signal that the DVD format has rapidly won mainstream acceptance, Blockbuster Inc., the nation's largest movie rental company, said Monday that it would sharply reduce the number of videocassettes in its 5,500 U.S. stores to make more room for DVDs.

The Dallas company said it will cut the number of videotapes available for rent by as much as 25 percent. The move will result in a $450-million charge to Blockbuster's earnings this year, the company said.

DVDs now account for about 20 percent of Blockbuster's rental revenue. Chief executive John Antioco said he expects that to increase to 80 percent within six years, given the rapid growth of DVD player sales.

In addition to renting DVDs, Blockbuster plans to sell DVD players. However, company executives said they expect videotapes will remain available in its stores for at least another decade.

DVDs quickly became popular mostly because of their crystal-clear digital picture and CD-quality sound. The format allows movie studios to include extra features such as foreign-language soundtracks and special editions that include material cut from the version of a film released to movie theaters.

About 86 percent of homes own a videocassette player, compared with about 20 percent of homes with DVDs. But DVD players are the fastest-growing electronics device in terms of total sales, according to the Consumer Electronics Association, a trade association. Even so, the approximately 12-million DVD players that will be sold this year will fall short of total sales of videocassette players, expected to be 22-million. The average price of a videocassette player is $73, compared to $193 for a DVD player.

The move to DVD will allow Blockbuster, which is majority-owned by entertainment conglomerate Viacom Inc., to keep more money from each transaction.

Blockbuster entered a revenue-sharing agreement with the studios that own the rights to the films in 1997 to avoid buying every videocassette in its stores. At the time, the tapes sold for as much as $65 for newly released, first-run movies. DVDs average less than $17, allowing Blockbuster to buy them and to skip sharing proceeds with the studios.

Blockbuster stock fell $1.64, or 8.2 percent, to close at $18.35.

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