Fade to Black

As Blockbuster and other big chains devour more and more of the market, mom-and-pop video shop operators fret about being erased

As his store became more dependent on computers for accounting and inventory control, Curbelo dug into the technology with relish. "It became more than a hobby very quickly," Curbelo recalls. "One day we developed a problem and I knew more about our system than the repairman who came out to fix it. I started offering CD-ROM installation and small-scale troubleshooting to a few of my customers who asked for it, and that eventually led me into programming and writing software." The contractor/video store proprietor/data processing consultant has crafted real estate management and wedding consultant programs to complement the mainstay of his computer business, a video store management program he is considering marketing nationally.

Not surprisingly Curbelo sees technology -- particularly CD-ROM -- as the mom-and-pops's best hope for the future. "When I first opened, fifteen percent of American households had VCRs. Now it's eighty-seven percent. This year [1994] fifteen percent of American households had PCs, and better than half of those had CD-ROM. If the analogy follows, there's enormous potential growth in the CD-ROM market."

Even such cautious optimism does not infect Zeeman. "The last really good year for the mom-and-pops was 1989. That's when Blockbuster really started taking off," he explains. "When some of the larger mom-and-pops realized that as a small independent they didn't stand a chance in hell, they tried to upgrade to superstores themselves. That's what Rene did and it worked for him. But it didn't work for everyone. One of my best customers, L.P.D. Video in Miami Lakes, expanded their store. They bought thousands of titles. Then Monster Video [a local chain] and Blockbuster both opened a few blocks away. One of them had to lose. It was my customer. Even if you get big, it's tough to compete with a chain."

Zeeman ticks off the names of former clients from Homestead to Wellington that have closed in the last four years. He sounds like a World War I veteran reciting the names of Army buddies he has outlived. "Grand Video in West Palm, that guy had four strong stores and now he's gone," Zeeman muses. He pauses for a beat, then adds, under his breath, "They're all gone."

"Squelch the doomsayers!" crows Chris Arns, vice president of sales for the Illinois-based Baker and Taylor, the nation's second-largest distributor of videotapes. (Most movie studios have home-video divisions, which sell tapes to distributors who then market them to retail outlets.) As you might expect of a man who sells videotapes by the tens of thousands for a living, Arns is bullish on the video business. "My own mother was shaking her head the other day, saying, 'This interest in videos won't last.' My own mother!

"Videos are the greatest entertainment value there ever was. When you think that you can buy a major feature film that cost over $100 million to produce for only fifteen dollars, that's amazing. Everybody talks about the looming information superhighway and what that will mean. Well, right now, December 29, 1994, it doesn't mean much. There's an installed base of 85 million VCRs in this country. The developers of new technology like Matsushita, Phillips, and Sony have been very good at publicizing their advancements. But video sale and rental is still a $12 billion a year industry, projected to grow to $17 billion by 2004." (A recent study done by communications and entertainment industry consultants Paul Kagan Associates, Inc., estimates $15.2 billion in 1995 and $19.3 billion by the year 2000.)

"Of course," Arns continues, barely pausing for breath, "it's probably true that the mom-and-pops aren't in the best position to ride the growth, especially in sell-through where you have the proliferation of video departments in chains like Wal-Mart, Kmart, Phar-mor, and so on. Not that many years ago it was very easy to get into. All it took was a small investment. With $30,000 [coincidentally, the exact amount Curbelo used to open Video Pursuit] anybody could open a store. You might have had some people who thought they could put a bunch of videos on a wall and read magazines all day, and for a while they might have been right. Most of them were probably undercapitalized from the start. Those days are probably over."

The Baker and Taylor VP sees potential for independents serving two extremely disparate markets: densely populated inner cities and sparsely populated rural areas. "The real fighting ground is the middle-class, suburban market," he points out. "Right now the action is in the regional chains. Blockbuster is obviously number one [in market share]. But it's a long way from number one to number two. If Blockbuster is McDonald's, then who's Burger King? There really isn't one. We've seen a lot of mergers and alignments of smaller companies attempting to position themselves to better compete. There have been as many IPOs [initial public offerings of stock] this year [1994] as ever. Hollywood Video from Portland, Oregon, and Movie Gallery in Dothan, Alabama, are two regional chains that have performed well. Now the battle is on to see who will play second fiddle to Blockbuster."

Earl Page, retail editor of Video Business and Video Software magazines, two leading industry trade publications, agrees with Arns's assessment. "Right now is both the best of times and the worst of times for mom-and-pop video stores," he theorizes. "It's the best of times if they're good enough and large enough to be a candidate for the frenzy of acquisitions going on in the video rental industry. It's the worst of times if they're not. The opportunities are out there. But you have to be smart and entrepreneurial."

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