Video Rental Outlets Gain Popularity

Date 1980’s

Increased ownership of videocassette recorders helped to create a profitable and expanding industry in the rental and sale of prerecorded videocassettes. Once rental outlets grew in number, large motion picture studios entered the video market.

Locale United States

Key Figures

• George Atkinson (1935-2005), entrepreneur credited with opening the first rental store for videotapes
• Andre Blay (b. 1937), first entrepreneur to move into the video market, selling tapes by mail
• Morton Fink (b. 1933), Warner Home Video executive who tried to maintain the film industry’s control over the video industry
• H. Wayne Huizenga (b. 1937), chairman of Blockbuster Entertainment Corporation

Summary of Event

The video industry started in 1947, when entertainer Bing Crosby commissioned the Ampex Corporation to develop a tape recorder to help alleviate the broadcasting problems associated with the different time zones in the United States. Nine years later, Ampex came out with the videotape recorder, or VTR. Heavily used by professionals, the VTR was impractical and too expensive for home use. Seeing a potential for the VTR, the Japanese company, Sony, went after the home market in the early 1960’s. Video technology remained primarily a Japanese venture for some years thereafter, as Sony, Matsushita, and JVC combined forces to develop a better machine. In 1975, Sony introduced a new machine, the Betamax, a videocassette recorder (VCR) for home use.

Initially, users employed VCRs to record broadcast television programs for later viewing. Two entrepreneurs recognized the potential for additional uses, however, and opened the door for the explosion of video sales and rentals in the 1980’s. In 1977, 209,000 homes in the United States contained a VCR, representing less than 1 percent of all U.S. homes that owned a television set. That year, the prerecorded video industry was born. Andre Blay, an audio and video distributor, acquired rights from Twentieth Century-Fox Film Corporation in July, 1977, to sell fifty film titles on videocassette. The titles were taken from a list of one hundred films, already sold to network television, chosen by the studio.

Blay selected popular titles such as M*A*S*H, The King and I, The Sound of Music, and Hello, Dolly! He initially paid $6,000 per title for the right to copy the films and agreed to pay a minimum of $500,000 per year against royalties of $7.50 per cassette sold. Blay formed the Video Club of America, from which prerecorded cassettes could be purchased by mail order for $49.95 apiece ($37.50 wholesale). He placed $65,000 worth of advertising in TV Guide and waited. By March, 1978, 40,000 videocassettes had been sold; by the end of that year, more than 200,000 more had been shipped. Recognizing the potential of video sales, Twentieth Century-Fox bought Blay out at the end of 1978 for $7.2 million. Warner Bros. would follow as the second Hollywood studio to enter the video market, with the formation of Warner Home Video in 1979.

Around the time Blay became a multimillionaire, another entrepreneur entered the video market, this time with rentals. George Atkinson operated a store in Southern California that rented Super 8mm films. Although he owned no videos, he ran an advertisement in the Los Angeles Times simply stating, “Videos for Rent.” The response was tremendous, and Atkinson quickly purchased Blay’s fifty titles from a wholesaler at $40.50 per title.

Atkinson set up a video club with memberships costing $50 per year ($100 for a lifetime membership). Members were entitled to rent films for $10 per night. Atkinson’s rental business took off. After receiving numerous inquiries about his store, Atkinson decided to franchise his idea, calling the new stores “affiliates.” His Video Station grew to five hundred affiliates by 1983.

As VCR ownership grew in the early 1980’s, other video rental outlets sprang up across the country. In 1983 alone, some four million VCRs were sold; that figure nearly doubled in 1984. In addition, blank tape sales rose dramatically in 1984, after the U.S. Supreme Court ruled that consumers were within their rights to tape programs for later viewing. As the demand for videos increased, video rental outlets added video sales. The two remained linked as the industry grew. In many cases, consumers would rent a tape and then buy it later if they wanted to add it to their home library.

Significance

The impact of the video market was first felt by the film industry. Studios initially found little to contest concerning prerecorded video sales. Once rental outlets grew in number, however, the studios found themselves losing the control they had enjoyed throughout their history. One problem stemmed from royalties. When George Atkinson started his video club, he did not call into question the legality of his actions. He had bought from a wholesaler the films he rented to customers. Royalties had been paid to Twentieth Century-Fox, and Atkinson felt no obligation to pay the studio for his rental income. By 1980, however, as his business grew, Atkinson grew nervous and had an attorney look into the matter. Atkinson had been right: According to copyright laws, the studios were entitled to royalties only on the first sale, not from subsequent rentals.

By mid-1981, the Disney, Paramount, Columbia, and MGM motion-picture studios had all entered the video market. Video sales, while only $20 million in 1980, grew to $900 million by 1985 and reached almost $3 billion by the decade’s close. Although wealthier consumers were eager to buy titles and form their own video libraries, rentals were more appealing to the general population. Many of the early video releases were priced at $79.95 or higher; a rental usually cost between $3 and $10. Although the studios enjoyed an increase in revenues from sales, the rental aspect of the video industry, which did not produce income beyond the first sale, continued to plague them.

In an attempt to gain some control over the burgeoning industry, several studios, including Warner and MGM, tried to introduce a lease program in the early 1980’s. Warner executive Morton Fink devised a plan for dealers to rent films from the studios for a six-month period. Studios would receive more income from the lease agreements, and theoretically the stores would benefit from having excess copies taken off their hands when the six months were up. The video dealers’ negative response came quickly, as they threatened to boycott studios that chose to participate in the plan. The video dealers had already found a way to decrease their inventory. Titles that had lost their “new release” status were sold as “previously viewed” tapes for a reduced price, while the outlet kept one or two copies on the shelves for rental. The studios relented, and the system stayed as it was.

In the early years of the video market, studios kept tight control over which titles were available for release by selecting material from their film vaults, not using their new releases. Titles that, in most cases, already had been broadcast on network television filled the shelves of rental outlets. Most studios cleaned out their film catalogs in the first few years, and VCR owners were still hungry for more. This demand helped to create several new genres of videotapes.

The first new video genre drew from the popularity of the Music Television (MTV) network and music videos. In 1983, the first mass-produced music video hit the market, Vestron’s release of The Making of Michael Jackson’s “Thriller.” That same year, another genre, “how-to” videos, found success with Jane Fonda’s Workout. (video)[Jane Fondas Workout]> In addition to classic films that already had resulted in high sales and rentals, 1950’s and 1960’s television programs proved to be a profitable submarket, especially among baby boomers who grew up on such shows. In 1990, these programs represented half of all video purchases, while new releases topped rental charts. Another new market for classic productions emerged when colorization techniques brought new interest to these titles in the late 1980’s. The biggest subgenre was children’s videos. Dominated by Walt Disney Productions, these titles represented 20 to 30 percent of the market.

Mature titles had been available via underground networks since the first sales of VCRs. Small stores retained adult-only back rooms or separate areas, but most major chains, including Blockbuster, established a systemwide policy of refusing to stock questionable titles. Another issue in this movement was owner liability. As evidence grew connecting crime with pornographic material, store owners feared being held accountable for crimes committed by rental patrons. By the late 1980’s, few stores carried pornographic titles. The most risqué items on the shelves were “director’s cut” versions of films that included scenes that had been cut for theatrical release.

Hollywood studios responded to the new video competition by reducing the release delay, the time between theatrical runs and video releases. At first, this delay was more than a year. As demand and competition grew, the studios cut this time to as little as four to six months so that titles were still fresh on the minds of consumers. Some smaller film companies, unable to compete with the larger Hollywood studios, revamped their focus and turned to straight-to-video films and B-films—which often bypassed the theaters. Studios found that people were willing to pay the low rental fee to see a film that would not have attracted many patrons at theater prices. Video stores played into these changes by displaying posters of coming titles, offering presales, and selecting “sleepers” each month to call attention to the B-films.

In another attempt to increase video sales and to compete with rentals, studios turned to video advertising. Early videos contained no commercials. By the late 1980’s, as studios dramatically lowered video prices, aiming for consumer sales rather than sales to rental dealers, videos started to include previews of upcoming theatrical and video releases as well as product “commercials” for video sponsors. In some cases, companies would offer giveaways or rebates on video purchases.

The video industry was not without its problems. Piracy resulted from time delays before release. If a single copy of a film was obtained prior to a scheduled release, the film would soon appear in stores across the country via a vast underground network. Anyone with two VCRs could copy a tape illegally, and a large market existed for this contraband. The problem was especially prevalent in foreign countries and in low-income and high-crime areas of the United States, where retailers were willing to take the risk. A Federal Bureau of Investigation (FBI) warning on all tapes stating the fines for illegal use of the tape did little to stop the problem. Hollywood studios estimated lost revenues at more than $1 billion a year. An anticopying feature that reduced the quality of copies made of tapes emerged late in the 1980’s.

The copying of films onto videocassettes added new levels to the film industry. Previously, a film had gone from production to distribution, where it was copied onto film for theatrical release. It was then rented to theaters for showings. Once the video market took off, the mass duplication of cassettes created new needs. Distributors were responsible for overseeing the mass duplication of a film by a duplication company. After duplication, the distributor sold to wholesalers, which in turn sold to retailers for rental or sales. Some film studios owned companies at each level. For example, Walt Disney Productions owned the Buena Vista Distribution Company, which in turn supplied the Disney Store.

After 1985, the video industry saw an increase in the dominance of major chains and the demise of the early small businesses. The leader of the movement was Blockbuster Video. Started in 1985 by a small group of investors in Dallas, Texas, the growing company caught the eye of H. Wayne Huizenga, an already successful businessman who had built the prosperous Waste Management, Inc. In 1987, he led a buyout from the original management team and moved the company headquarters to Fort Lauderdale, Florida. Over the next six years, Blockbuster grew from 238 to more than 3,200 stores, becoming the largest chain of stores with videos as its primary product.

Setting the standard for video rentals, the company offered three-evening rentals and stores open until midnight every day of the year. Blockbuster carried no pornographic films or films carrying NC-17 ratings and would not rent R-rated movies to customers under the age of seventeen unless prior parental approval had been given. The company also established its Youth Restricted Viewing program for unrated films as well as the Kids Recommended Viewing Program for family titles. In addition, Blockbuster’s Community Service Program offered free family-oriented tapes to customers. The chain also added rentals of video games, a development followed by other stores. By the early 1990’s, the company had grown to almost $2 billion in systemwide annual revenue.

Other national chains, including Tower Records, Video Shack, and Wherehouse, followed Blockbuster into music sales and video game rentals to stay profitable and to avoid takeovers by Blockbuster. The Southland Corporation’s announcement of plans to rent and sell videos in its 7-Eleven stores marked the movement of convenience and grocery stores into the video marketplace. Consumer choices for video outlets expanded to gas stations and other high-traffic locations.

The future of video outlets seemed endless at the close of the 1980’s. The market successfully handled competition from such sources as cable movie channels, pay-per-view stations, and laser discs. As compact disc (CD) and digital video disc (DVD) technology was introduced, video outlets simply adjusted by offering these forms of movie recordings in their rental inventories.

Bibliography

DeGeorge, Gail. The Making of a Blockbuster: How Wayne Huizenga Built a Sports and Entertainment Empire from Trash, Grit, and Videotape. New York: John Wiley & Sons, 1996. Biography of the highly successful chief executive officer who built the multibillion-dollar companies Waste Management and Blockbuster. No index.

‗‗‗‗‗‗‗. “They Don’t Call It Blockbuster for Nothing.” BusinessWeek, October 19, 1992, 113-114. Traces the tremendous growth of the video giant and discusses how the company’s financial success helped it diversify into other forms of entertainment.

Dobrow, Julia R., ed. Social and Cultural Aspects of VCR Use. Hillsdale, N.J.: Lawrence Erlbaum, 1990. Excellent collection of essays on VCR use and the prerecorded cassette industry. Discusses the place of VCRs within the American family. Of particular interest is chapter 2, “The Economics of the Prerecorded Videocassette Industry.”

Lardner, James. Fast Forward: Hollywood, the Japanese, and the Onslaught of the VCR. New York: W. W. Norton, 1987. This frequently cited, well-written work looks at the video market and its movers and shakers. Traces the development of technology and the prerecorded tape market as well as the response of the Hollywood studios to the new competition. Contains several personal recollections on the development of video.

Levy, Mark R., ed. The VCR Age: Home Video and Mass Communication. Newbury Park, Calif.: Sage, 1989. Discusses the VCR industry, including prerecorded tapes, as a means of mass communication. Also looks into the effectiveness of their uses as tools for communication.

Nmungwun, Aaron Foisi. Video Recording Technology: Its Impact on Media and Home Entertainment. Hillsdale, N.J.: Lawrence Erlbaum, 1989. Excellent coverage of the development of the video recording industry. Covers the impact of VCRs on the film industry.