The Rental Market Takes Off

Electronic Gaming Business, August 27, 2003

The numbers are in and there is good reason for game publishers and video rental stores alike to take the rental channel seriously in 2003 and beyond. According to the newly-released 2003 Annual Report from the Video Software Dealers Association, 2002 was a banner year for games in this channel.

Total rentals accounted for $721.6 million in sales at video stores in the U.S., up 13.9% from $633.9 million in 2001. A total of 162.9 million "turns" or actual rentals was up 6.3% from 153.2 million turns the previous year. The VSDA says that video chains and even many independent stores are bullish on the medium, and leading distributor Ingram Entertainment reports that the average video rental store makes 10% of its revenue now from games, with some chains now getting up to 25%. Yup, gaming has arrived at your local video outlet.

Platform Smackdown

In the first half of 2002, both GameCube and Xbox were very early in their life cycles, and so it was not surprising that the more mature PS2 games grabbed nearly a 49% share of rentals. Still and all, both Xbox and GameCube enjoyed double digit shares respectively, even though many outlets only started carrying games for these platforms well in the year.

Perhaps the most notable statistic in the VSDA breakdown of rentals by platform (see chart) is the persistent appeal of last-gen machines. Both Nintendo 64 and PS games continued to grab a respectable share of rentals despite the presence of next-gen systems, which may suggest interesting opportunities for game publishers during the next console hardware transition, probably in 2006.

While the major retail and specialty channels swell with next-gen offerings, the very broad demographics and family orientation of the rental channel could be a likely place for game companies to squeeze more life from the outgoing generation of hardware. Rental stores may be a great place to focus sales and marketing efforts for the last wave of Xbox, GC and PS2 titles, because visitors to these stores seem more likely to be late adopters who cling longest to their older hardware.

Interestingly, the most popular game platform on the planet, the GameBoy Advance, does not even register among platform shares, since many rental outlets shy away from a micro-cartridge format that is so easily lost. This may change, however, as consumers themselves seem to be demanding it. For instance, online game rental outlet GameFly (www.gamefly.com) tells EGB that one of the most common requests from customers is for GBA titles, and so the company is about to launch a GBA rental program in September. With GBA penetration so high and the cost of these titles for video stores much lower than new titles on the other consoles, we expect more than a few independents and chains to experiment with GBA rental.

Top Sellers vs. Top Rentals 2002

Statistics about game rental patterns remain scant, but a simple comparison of last year's chart toppers in general game retail sales against the top rental titles suggests unique market possibilities for this channel.

A number of top renting titles don't even show up on the retail sales list, while other titles occupy very different rungs on each list, which suggests some of the ways in which the rental channel works for certain types of games.

That the older-skewing Medal of Honor was #6 in sales but #2 in rental shows that the games racks in video stores are not being frequented only by youngsters while mom and dad shop for DVDs. Adult males, the target demo for the MOH series, are likely using rentals to test titles as well. The appearance of Atari's Stuntman as well as the VIS title State of Emergency as top renters also shows how niche and sleeper titles can get exposure here. Both titles had novel game concepts that perhaps intrigued many gamers who weren't ready to buy at retail.

With such a low barrier to entry (usually $5 or lower), the rental channel represents a golden opportunity for niche and innovative titles to get a chance to find audiences they may not get initially at full price via retail channels. Games marketers should consider targeting these sorts of titles to the video rental market, especially by offering the retailer reduced pricing to stock an offbeat or niche game.

The rental channel is challenged by the high cost of games at wholesale, so even a smaller publisher or an B-list title can break through in this market if the publisher offer the channel more attractive terms than they get from the A-list.

Breakthrough Opportunities

Game Renters demonstrated a catholicity of tastes when it came to publishing brands at video stores, according to the VSDA's breakdown of label shares. Predictably, Electronic Arts enjoyed a substantial share of the rental market (17.6%), but the remaining shares were fairly equally divided among the other major brands. Most striking is the 40.1% of rentals that involved a range of "other" publishers.

While the top-rented games continue to be blockbusters from the major labels, these numbers suggest that a good deal of renting also goes on among backlist titles and other games that are not coming from the top named publishers. It may be a mistake to presume that because of its relatively shallow games inventory and the natural association with video releases that the video rental channel works best for the highest profile games and movie-tie-ins.