A trend in the national movie rental industry to eliminate late fees and charge monthly membership fees has mom and pop stores rethinking their business plan.
Movie rental giant Blockbuster on Jan. 1 eliminated its late fees, which it found to be the No. 1 deterrent to renting movies. Over the past 18 months, Blockbuster launched in-store and online subscription programs offering customers no due dates and no late fees for up to three products at a time for a monthly $14.95 fee.
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Meanwhile, Netflix, one online rental service, offers movies for unlimited time periods in exchange for a monthly $17.95 membership fee.
Under the new “no late fees” program, Blockbuster still has due dates – one week for games and two days or one week for movies. If customers need to keep the product for extra time, they have a one-week grace period at no additional charge, but there is a catch: After the grace period, if the customer keeps the movie or game longer, Blockbuster will automatically charge the customer’s credit card for the product, less the rental fee.
If customers decide they don’t want to own the movie or game, they can return it within 30 days for a credit to their account, less a minimal $1.50 restocking fee.
For the past year, the company tested the “no late fees” program and saw an “overwhelming positive consumer response,” said spokesman Randy Hargrove.
Smaller video stores realize the move will attract consumers to Blockbuster and are thinking of ways to stay competitive.
Robert Yaghjian, owner of Bellevue Video in Newport, did away with late fees on older movies starting Jan. 1 but will continue to charge late fees on new releases.
“Late fees are really just an incentive for people to bring new releases back on time. I’ve already made money on the older rentals so I decided to do away with late fees on those; I wanted to for a while, so when Blockbuster did it, I decided it was time,” said Yaghjian.
If a customer decides to keep an older movie longer than the five-day rental period, Yaghjian will charge them $7 to buy the movie – but he doesn’t keep credit card numbers on file, so he’ll have to charge customers when they return to the store.
“We have a strong customer base, and they can’t rent movies unless they are up to date, so I’m hoping there won’t be problems,” he said.
Silver Screen Video owner Reggie Deschenes said Blockbuster’s move will likely hurt small businesses trying to compete with the rental giant, but said he has no plans to eliminate fees at his small Tiverton store.
When customers rent a new-release movie at Silver Screen Video, they can keep it for two days and pay “extended rental fees” for the extra time. Deschenes said he’s considered letting customers pay for extra days upfront at half the rental price now that Blockbuster is allowing longer rentals.
The No. 2 video store chain, Hollywood Video, which was offered $850 million by Movie Gallery Inc. in a bidding war with Blockbuster last week, will track the results of Blockbuster’s move, but the Oregon-based company has no intention of changing its late-fee policy just yet.
“The culture at Hollywood Video is different. Late fees can be waived by even our entry-level employees, depending on the case. We are much more lenient,” said Larry Dennedy, an executive vice president with Mackenzie Partners Inc. who represents Hollywood Video. “Our focus is really on keeping our customers happy so they’ll keep coming back.”
There are a number of Hollywood Video stores throughout Rhode Island and Massachusetts.
The U.S. market for film entertainment spending will expand at a 6.3 percent rate, from $34.3 billion in 2003 to $46.6 billion in 2008 as DVDs replace VHS and subscription services like Netflix become more significant, a recent PricewaterhouseCoopers study shows.
In 2003, home video contributed 60 percent of the revenues major U.S. movie studios earned from films, and movie rental spending hit $22.2 billion, the Video Software Dealers Association 2004 Annual Report on the Home Entertainment Industry shows.
