Operators have scaled back their labour to remain profitable over the five-year period.
New York, NY (PRWEB) July 23, 2014
The DVD, Game and Movie Rental industry experienced a massive contraction in the past five years due to increased pressure from nonindustry competitors, including video streaming websites, on-demand services and rental kiosks. According to IBISWorld Industry Analyst Edward Rivera, “The affordability and flexibility associated with these substitutes compelled consumers to rent DVDs and other industry products less, diminishing demand for industry services.” The inherent cost advantages of streaming and nonstore based rental have also forced industry operators to lower their prices, contributing to the 8.9% decline in industry revenue over 2014. Overall, IBISWorld estimates that industry revenue will contract an annualized 14.1% to $560.5 million in the five years to 2014.
Industry operators spend an estimated 12.3% of their revenue on rent and utilities. These costs are specific to this industry, as external competitors are capable of automating their processes, negating the need for physical locations. Further, industry operators spend 20.0% of their revenue on labour costs, whereas automated retail kiosk companies only require labour to maintain and restock their kiosks. These cost advantages allow competitors to price their services at a lower price point than industry operators while retaining healthy profit margins. “In response to falling demand, many operators opted to slash their prices without changing their expenditures, resulting in weaker profit margins,” says Rivera. In the past five years, industry profit has fallen. Moreover, deflated margins have forced some industry operators to exit the industry, causing the number of enterprises to decline over the past five years. Subsequently, operators have scaled back their labour to remain profitable, which has resulted in employment decreasing over the same period.
Over the next five years, online content such as streaming and downloaded media will continue to service an increasing share of industry demand. In the five years to 2019, industry revenue is forecast to decline. With increased consumer spending, consumers will opt for more long-term services such as subscription based streaming. Nevertheless, these competitors will retain their cost advantages, pressuring industry operators to maintain lower prices and thus lower profit margins. In response, many industry operators will exit the industry, while those remaining will look to continue decreasing their staff levels to remain profitable.
For more information, visit IBISWorld’s DVD, Game and Video Rental in Canada industry report page.
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IBISWorld industry Report Key Topics
The DVD, Game and Video Rental industry comprises operators that rent out prerecorded media such as movies, television and video games. This industry excludes revenue generated from mail-distributed, kiosk-distributed, on-demand and web streaming rentals.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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