NEWS - Monday, May 13, 2002

Blockbuster Widens Video Game Array

Blockbuster, the No. 1 video rental chain, will revamp more than 4,300 of its outlets in the next month to include an area dedicated to sales of video games and game equipment, the company said Monday. The move comes at a time when the retail chains that specialize in video game hardware and software have posted record revenue and impressive growth rates, building on the game industry’s sales of more than $9 billion last year. Dallas-based Blockbuster, which is controlled by media giant Viacom, is betting that it can take a bigger share of that booming market by allowing consumers a chance to buy game consoles and rent or buy the games they play, all in a single location. "We have excellent market share in games rental, (and) it becomes fairly apparent that this is a big growth opportunity for Blockbuster," said Nick Shepherd, Blockbuster’s executive vice president for merchandising. Shepherd said the new video game ministores will be in 90 percent of the more than 4,300 stores by Memorial Day, with the rest in place by mid-June. Each of the four major game platforms--Microsoft’s Xbox, Sony’s PlayStation 2, and Nintendo’s GameCube and Game Boy Advance--will get its own dedicated section of shelving. Each of those sections, in turn, will offer games for rent, new and used games for sale, accessories, publications, and a few units of the consoles themselves. Blockbuster expects to offer, at an average store, 400 to 600 total rental titles and 150 to 200 retail titles, both new and used. To support the initiative, Blockbuster will launch a program called "Rent It! Like It! Buy It!"--giving gamers a $5 discount on a game if they first rent it at the regular price. The chain will also start a "Games Freedom Pass," allowing customers to rent an unlimited number of games for 30 days for $19.95, though they can have only two games out at one time. A one-month pass will also be given out for free to people who buy a console from the store. "Really, it’s a ’try before you buy’ mentality," Shepherd said. The video game industry is in the first full year of what analysts have said will be a multiyear cycle of unprecedented growth, driven by sales of the new consoles and next-generation software. In the most-recently completed quarter, the top three publicly traded video game publishers reported sales of $714.3 million, up 45 percent from a year earlier. The video game industry is also increasingly being recognized as an island of double-digit growth and strong investment opportunity at a time when technology and media stocks are largely being battered by weak ad sales and a tough economy. Observers have also remarked that as the industry matures it is coming to look more like Hollywood, with new game production financing models that look much like independent studio deals. Shepherd said the reason Blockbuster is willing to go head-to-head with established competition in the games retail business is that it can offer rentals. Some 70 percent of renters due so as a prelude to buying, he said. The top two specialized retail game outlets--GameStop and Electronics Boutique--have seen strong sales numbers since late last year, when the Xbox and GameCube were launched. GameStop reported a 35 percent increase in comparable-store sales for 2001, while Electronics Boutique reported a 47 percent jump in revenue for its last fiscal year ended in February.

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