A little competition for video rental giant Rival: Hollywood Video enters Baltimore market on its way up the East Coast.

April 03, 1997|By Liz Bowie | Liz Bowie,SUN STAFF

For a free view of the video rental industry, drive up Reisterstown Road. Within a mile and a half after Northern Parkway you pass three video rental stores: West Coast Video, Blockbuster and the latest attraction, Hollywood Video.

And if you can't find what you want there, drive another couple of miles north and you'll find another Hollywood Video and another Blockbuster.

The Baltimore region's latest release is Hollywood Video, a relatively small chain that is giving the long unchallenged giant of the industry a little competition. Hollywood Video has planted five new stores in Baltimore in the past six months -- from Catonsville to Pikesville -- and is planning to add two more this summer.

Hollywood Entertainment Corp. isn't about to catch Blockbuster soon. Hollywood had 850 stores at the end of 1996, and Blockbuster had about 5,000. Hollywood says it will add nearly one store a day this year as it moves its way up the East Coast. The company's goal is to have one store for every 50,000 people. But Blockbuster will easily top that by adding 600 stores this year, down from the 800 it had planned.

So what, says Robert Upson, an analyst with Janssen/Meyers Associates in New York.

"I think [Hollywood Video] will be a strong No. 2. I think they will be a billion-dollar company in the next couple of years," he said.

Hollywood, which was founded in 1988, has grown rapidly for a company that had only 25 video stores in eight states at the beginning of 1994. In 1996, revenues increased 102 percent to $302 million, and earnings went up 64 percent, to $20.6 million, compared with 1995.

For the average customer, the differences between Portland, Ore.-based Hollywood and Fort Lauderdale, Fla.-based Blockbuster may seem rather subtle. Both offer thousands of titles and lots of convenience in the same price range.

Blockbuster, with its blue and yellow sign, has a less jazzy inside, but it has covered the landscape with 45 locations in Maryland alone.

Hollywood spends more money on its red, yellow and blue interiors, has yards of neon signage, hip carpeting and salespeople dressed in uniforms of bow ties and cummerbunds.

The stores are 7,500 square feet -- about 1,000 square feet larger than Blockbuster -- with 60 televisions for in-store video previewing, a courtesy phone for checking a selection with a friend, and 10,000 to 16,000 videocassettes.

"We try to buy deeper and broader than other stores," said Douglas Gordon, senior vice president of finance at Hollywood Video.

The stores will carry 300 copies of new releases so that customers are less likely to walk in on a Friday night and be unable to find the hottest video, he said. It is a delicate balance, however, because each video costs about $60 wholesale. So a video store has to rent the video 20 or 30 times before it begins to make money.

Gordon said Hollywood Video is not aiming to steal customers from Blockbuster. "We are putting small Moms and Pops out of business," he said. Blockbuster has a little more than 20 percent of the U.S. market, Hollywood Video has about 5 percent, and the independent video rental stores have the rest.

Nevertheless, Blockbuster has responded to the Hollywood Video challenge by offering concessions, books and music, and by matching Hollywood's depth of new releases. Blockbuster carries 6,000 titles, according to Errol Gayle, a spokesman for the company.

"We are trying to divorce ourselves from being known as a video store but to accommodate a consortium of services," he said.

Last week, Viacom Inc., which owns Blockbuster, announced it was cutting the number of new store openings this year by 25 percent in an effort to cut capital expenses and debt.

Analysts speculated that Viacom was preparing to spin off the Blockbuster chain, which is expected to have flat same-store sales this quarter.

In addition, some question whether the video rental business can remain viable with the coming of movies on demand.

In the not-too-distant future, customers will be able to order up almost any movie through a cable network, watch it when they want and even stop it to go to the kitchen for popcorn.

So why would people choose to go to a video rental store?

"The movie distributors are not stupid. They are not going to kill the golden egg," said Dennis McAlpine, media and entertainment analyst for Josephthal, Lyon & Ross in New York.

Gordon said many movies released today make their money from rentals, not at the box office. "We represent over 50 percent of the movie studio revenues," he said.

So, he speculates, studios would release movies to different formats in stages: first to theaters, then to video stores and then to cable.

McAlpine said that in the near term -- at least for the next five years -- video stores will not be affected by movies on demand.

BTC Blockbuster vs. Hollywood Video

................Blockbuster ..............Hollywood Video

Headquarters ...Fort Lauderdale, Fla. ....Portland, Ore.

Top official ...Bill Fields ..............Mark Wattles

................Chairman, CEO ............Chairman, CEO

Employees ......46,000 ...................6,723

Total no. ......5,000 ....................850

of stores

No. of stores ..16 .......................5

in Balt. area

Avg. square ....6,000 ....................7,500

feet of stores

Avg. no. tapes .6,000 ....................10,000

per store

Pub Date: 4/03/97

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