Video Store Closed? The Best Way to Rent Now

Blockbuster (BBI) disclosed in an SEC filing Tuesday that it plans to close 810 to 960 of its stores -- roughly 22% of them -- by the end of 2010 to cut operating costs and stem losses from unprofitable locations. The company plans to change or end leases on another 275 to 300 stores, and convert another 250 to 300 to outlets selling new and used DVDs. These strategies, are designed to save Blockbuster $26 million in working capital, according to company estimates.

Blockbuster’s announcement and the slow disappearance of local video stores suggest that in-store DVD rentals could be going the way of videocassettes and Betamax. For consumers, the changes could force a significant shift in how they rent movies.

“It’s only a matter of time before video is relegated to cyberspace, subscription services and on-demand cable TV,” says Christopher Sharrett, a professor of communication and film studies at Seton Hall University in South Orange, N.J., who tracks the movie rental industry. “Stores don’t want to pay the overhead to have a substantial inventory [of movie titles].” The closings are especially bad news for those who rent infrequently, are technologically un-savvy or prefer niche genres, he says.

As many consumers already know, there are plenty of alternatives to driving to a store to rent a movie – and, for the time being, there’s plenty of variation in value and convenience. Here are a few ways consumers can cope with the Blockbuster closures and a look at how they measure up:

Blockbuster has yet to say which stores it will close and when, but most shutdowns and conversions are likely to happen in areas where the chain has multiple locations, says Dan Rayburn, principal analyst with consulting group Frost & Sullivan, where he covers the online video market.

Pro: If you’re a walk-in Blockbuster customer, you’re unlikely to be cut off entirely, but you may need to drive a little further to rent.
Con: Be prepared to pay. Prices for new movies run about $5; older titles, $4.

Video-rental kiosks -- vending machines that dispense DVDs -- are booming, with 19% of movie rentals in 2009, according to market research firm NPD Group, which collects weekly data from consumers 13 and older about their video rental and purchase habits. Last year, these services represented just 2% of rentals.

NCR Corporation (NCR), which operates DVD kiosks under the Blockbuster Express label, said Wednesday it would add more than 2,500 kiosks internationally this year, and aim to have 10,000 in supermarkets, drugstores and other locations by the end of 2010. (Currently, there are about 500 nationwide.) “Where a [Blockbuster] store might close, certainly we would look to place kiosks there,” says Alex Camera, the vice president and general manager of NCR Entertainment.

Pro: Kiosks are by far the cheapest rental option, with both Redbox and Blockbuster Express charging $1 per night.
Con: Selection tends to be limited to new releases and popular titles because of space constraints.

Mail-delivery services – in which users select movies online and have them sent to their homes – have grown in popularity as brick-and-mortar stores have closed. Subscribers to Blockbuster’s mail-delivery service may want to re-compare against competitor Netflix (NFLX). Both charge identical prices for basic plans: $8.99 a month for one DVD at a time, $13.99 for two, and $16.99 for three. But the difference in value becomes clear when you look at the extras.

Blockbuster’s service
Pro: Blu-ray rentals cost no more than conventional DVDs. An extra $3 a month bumps you up to the Total Access membership, which lets subscribers swap mailed DVDs in stores for faster exchanges and free or discounted rentals.
Con: “How much value does that really have anymore?” Rayburn asks. Renters may find the remaining locations inconvenient, or their inventories insufficient to handle the added demand.

Netflix
Pro: Netflix offers 100,000 titles, compared with Blockbuster’s 90,000.
Con: Depending on your plan, you’ll be charged an extra $1 to $4 a month to rent Blu-ray DVDs.

Although downloading movies to rent is still appealing to only a small segment of the market, it may become a more popular option for consumers who want to watch an older or obscure movie, or would rather not wait for a subscriptions service to mail it, Sharrett says. Netflix offers subscribers to its mailing service free streaming of more than 17,000 movies to your computer or an Internet-capable TV. Blockbuster offers download rentals, charging up to $3.99 per 24-hour period. (It also offers some rentals for free.) Apple’s (AAPL) iTunes Store offers downloadable movie rentals for up to $4 (users get 30 days to start the movie, but once it’s begun, it will remain on your computer for only 24 hours). YouTube is also considering a pay-for movie streaming service.

Pro: Broadly speaking, this is the fastest way to rent a movie today. It’s also among your cheaper options.
Con: Depending on your home theater setup and the service you choose, viewing the movie you download on anything but your computer or laptop might require additional cables and connections.