Netflix, Video Kiosks Replacing the Local Video Store

Sales and rentals of packaged DVD and Blu-ray discs plunged about 20 percent during the first quarter, with more money spent on subscription rentals than in-store rentals.

The Digital Entertainment Group, a Los Angeles-based, industry-funded nonprofit corporation that advocates and promotes home entertainment products, said that the sell-through of packaged discs fell 19.99 percent to $2.07 billion during the first quarter.

Likewise, rentals of physical disks in brick-and-mortar rental locations fell 36.14 percent to just $440 million, an indication that the day of the local video shop - national chain or not - may be on its way out. Instead, subscription rentals and kiosk rentals, such as Redbox, jumped dramatically, with subscription rentals passing brick-and-mortar rentals.

DEG attributed the drop to a lack of popular movies and the shift of the Easter holiday to the second quarter.

"Sell-through was down 18 percent for the quarter, as anticipated, since there were four tentpoles accounting for $1 billion of box office released on Blu-ray and DVD in first quarter 2010 but no such equivalent for first quarter 2011," the group said in a statement. "Further, the Easter holiday, a considerable home entertainment buying season, was not part of first quarter this year, accounting for some of the period's decline. However, the second quarter is off to a strong start, with sell-through up 20 percent in the first few weeks alone."

Kiosk rentals increased 30.8 percent, nearly equaling brick-and-mortar rentals at $367.8 million. Subscription rentals (which included both by-mail rentals as well as streaming) soared 33.04 percent to $695.82 million. Total rentals, including streaming but excluding video-on-demand content, increased 2.5 percent to $1.98 billion.

Those trends have been experienced by Coinstar, whose Redbox business unit reported a 37.7 percent jump in revenue to $362.3 million during the first quarter, and Netflix, . Coinstar also said that it would launch video-game rentals in its Redstar kiosks in June, following a limited trial. And Blockbuster, once the king of video-rental stores, now is a .

In all, total U.S. home entertainment spending fell 9.8 percent to $4.185 billion. In an unrelated study released Tuesday, Nielsen reported that the number of U.S. consumers owning a television dipped to 114.7 million, down form 115.9 million in 2011, which the firm attributed to an aging population, the DTV transition and belt-tightening during economic hard times.

DEG also said that Blu-ray disc sales were up nearly 10 percent compared with the first quarter of 2010. "Blu-ray 3D software is also beginning to show signs of material growth, with anticipated retail sales of more than $100 million for the year," the DEG added.