In-Person Video Rental is Dying. What Should Family Video Do Next?
Why do companies keep on running with the same business model when market trends point to their industry reducing itself to nothing?
Take brick and mortar video rental. There’s a Family Video right down the street from where I live, but I haven’t bought anything there in years.
The physical video rental market is declining by double digits every year.
Competitors like Redbox have taken major expense out of the business model (labor, physical space) to offer bare minimum service. Digital consumption is booming. Netflix is a monster branching out into content production and winning awards to do so.
The chart above illustrates just how rapidly the market for physical movie rental is declining. Even kiosk rentals are drying up fast. The bottom half of the chart shows you were these sales are going: mainly to digital, either on demand or by subscription.
And who can blame consumers for switching? It’s a whole lot easier and faster to rent movies and watch them right away without leaving the couch.
We’re Going Back in Time
Going inside a Family Video is like being transported back to the mid 90’s, decor and all. Every store I’ve seen in Wisconsin is a little worse for wear. This is just what you would expect from a low margin business in a shrinking industry.
And yet, Family Video shows no signs of changing. They are not going digital, and the only concession to market conditions they are making is downsizing stores to lease space to other businesses.
To be fair, Family Video does have some good things going for it:
- Monopoly or near-Monopoly in retail video rental within the geographic areas the stores compete in. They are the “last man standing.”
- They own the real estate their stores operate on, a huge contrast from what helped kill Blockbuster
- They are profitable and still expanding(!)
- Privately owned, so no quarter by quarter pressures from investors for immediate performance
- They create jobs, but low-margin retail jobs are not the best
Why Keep Renting Physical Movies?
When I asked my Facebook friends about Family Video’s continuing appeal, I got some great responses back:
Diversity and memories… my kids loved looking at all the choices and it was family time. A nice opportunity to do something as a family, from choosing, negotiating, discussing what was appropriate, financially possible, responsibility for another’s property, and the results extended to more family time watching the movies.
They call every few months and say we get half price and even with Netflix movies I know I won’t have to wait to see a movie- I also like the community feel and the kids section has some great ones.
I think my kids would love to go with me on a Friday night and pick out a movie. But red box is just easier.
I do sometimes for the kids to watch an older kid classic or to have something new to watch on the DVD player in the van.
Owning their own store real estate puts Family Video in an interesting position. Having extra retail space creates opportunity, but for what, when retail store space is not exactly a hot commodity?
Some of the things the company has done are bizarre: expansions into random businesses like phone repair and even fitness centers. What the hell for? The only connection between fitness and movies is that sitting on your ass watching TV can make you fat.
In 2012, they purchased exclusive Marco’s Pizza franchise rights, which is a great move. What goes better with family movie night than a good pizza?
Overall, Family Video seems to lack operational focus. As in Good to Great, the business lacks a “hedgehog concept:” an unshakable idea of what the business should excel at.
So What’s Next?
All companies need to think about their endgame. What happens when, not if, their primary market is disrupted? Is Family Video a physical movie seller, or are they something more adaptable?
What if Family Video positioned themselves as a “family entertainment provider?”
Re-framing through this lens creates new possibilities for going forward. Here’s one potential direction that provides a “glide path” to navigate movie rental decline and a route to future growth that builds on their existing brand.
The Movie Theater Model
So it turns out there is an example we can look to for inspiration in the same industry as Family Video: movie theaters.
For years, theaters have operated on low or negative profit per ticket. They make their money by selling add-on services around the actual movie: food, beverages, candy, pre-event advertising and, more recently, better seating and other perks.
Family Video already tries to up-sell customers popcorn, candy and so on with their rentals in store, which is smart. Imagine that taken to a whole new level.
Build On the Need for Convenience
I have a two year old daughter, so the idea of getting to a movie at a theater is just a dream right now. No chance. But I would love to have more of a theater experience at home. That means food, great popcorn, candy, soda and all the rest, all served to me in an easy way. Microwave popcorn sucks compared to the movie theater’s. And I’m really busy. If I have to pre-plan anything, it’s not gonna happen.
Take better advantage of Marco’s Infrastructure
As I mentioned, the Marco’s Pizza franchise deal is a really smart move for Family Video and it fits right into the “family entertainment provider” concept. They’ve got a delivery system and drivers in place.
What if Family Video offered “Movie Night” packages delivered right to your door?
Think of the possibilities:
- GREAT popcorn
- Movie theater style candy, and other snacks
- Those huge cinema size sodas
- Good quality pizza, sandwiches and so on from Marco’s
- …And movies
- All ordered through a mobile app or by phone
- Delivered in 30 minutes or less
Get the Details Right
Popcorn is a great profit margin builder and a big selling point if it’s done right. I recommend a partnership with a gourmet franchise like Doc Popcorn. A brand name will increase the cachet and demand.
Presentation is super important here. The whole thing needs to provide that movie theater feel. Packaging will be key to reinforce this.
This Is “An” Answer, Not “The” Answer
It’s going to take more than one pivot to get Family Video to a sustainable and profitable future, but I believe the concept above is a great starting point that sets the tone for a way forward.
Build Off The Brand
Family Video has a strong brand. The concept above builds on and reinforces that brand even as the focus of its services and revenue shift away from movie rental. The company’s other concepts, fitness centers and device repair, dilute the brand and weaken Family Video’s focus.
The next few years will be critical for Family Video. I hope they make the right moves to adapt and survive.
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