Blockbuster will close its last remaining 300 video rental stores in the United States by January 2014, with consumers increasingly favouring digital downloads and subscription services.
The death of video rental stores has long been seen as inevitable, with the numbers of video rental store declining sharply since the early 2000s.
The US Blockbuster, which is owned by DISH Network Corporation, will also end its mail DVD distribution operations by early mid-December.
“This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment,” said DISH chief executive Joseph Clayton in a statement.
“Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.”
The company is shifting its focus to its Blockbuster Home Service which provides a streaming service to TVs, computers and iPads.
The Australian Blockbuster stores are not associated with those in the United States. Blockbuster Australia was purchased by Video Ezy in 2007, forming a new venture called Franchise Entertainment Group, which also owns Ezydvd.
In the US, a study by Background Check revealed 70% of 18 to 29-year-olds have downloaded illegal content, while 50% believe sharing music and movie files with friends is okay.
The situation is no different in Australia. Australians recently topped the rankings for illegal downloads of the final episode of TV show Breaking Bad, making up 18% of the 500,000 illegal downloads within the first 12 hours of the show airing.
According to figures from the Australian Bureau of Statistics, in the 1999/2000 financial year there were 1166 video hire businesses operating in Australia. These businesses operated from 1615 outlets, predominantly from capital cities.
In 2013, IBISWorld says there are just 255 DVD rental businesses still operating in Australia – a drop of almost 80%.
According to IBISWorld, the industry has declined at an annual rate of 14.8% over the past five years.
IBISWorld said in its report on the sector its decline has been caused by increased competition from new digital media, subdued economic growth, and other retailers selling DVDs are reduced prices.
“This is due to significant competition for household discretionary income from several sources, such as the internet and pay-TV operators,” IBISWorld said.
“Other retailers are continuing to encroach on the traditional territory of video stores, especially in the sale of DVDs, Blu-ray Discs, generally at reduced prices.”
SmartCompany contacted the Australian Video Rental Retailers Association, but received no response prior to publication.
The majority of the remaining businesses are located in New South Wales, Queensland and Victoria.
Australian Home Entertainment Distribution Association figures reveal the average price of a DVD is currently $16, compared to $20 in the early 2000s.
This has acted as a double-edged sword for the industry, boosting the numbers of DVD sales, but turning renters into buyers.
In response to increased competition from other retailers and digital media, video rental stores have responded by offering reduced rental fees and extended hire times.
IBISWorld say some have also installed self-serve kiosks and offering online delivery of selected movies to lower labour costs.
The Franchise Entertainment Group currently dominates the industry, with 33% of the total revenue share. Over the next five years it’s predicted there will be only one or two major chains left, and a number of smaller niche operators.
“In the next five years, industry revenue is expected to continue to fall, decreasing by 12.3% per annum, to $342.2 million in 2017-2018,” IBISWorld said.
“While sales of higher-priced Blue-ray products are currently accelerating and expected to replace lost DVD revenue, this is off a very low base and fails to attract households away from digital avenues.”