Indie movie-rental shops emphasize customer service to fend off Netflix, Redbox

When Hollywood Video closed a store at Seattle's Roosevelt Square last fall, some customers fled to two nearby indie rental shops, boosting membership rolls just in time for winter's drizzly movie-watching weather.

But the same forces that crushed Hollywood Video in that neighborhood could threaten the entire bricks-and-mortar movie-rental business.

The nation's two largest chains have been shutting stores as more people rent movies through the Internet, mail and stand-alone kiosks.

Hollywood Video, which is owned by Wilsonville, Ore.-based Movie Gallery, also closed stores last year in Seattle's Wallingford and Capitol Hill neighborhoods, as well as Shoreline and Mercer Island.

Blockbuster Video, meanwhile, has said it might close nearly 1,000 stores nationwide by the end of 2010, or about 20 percent of its total.

The Dallas company instead plans to set up as many as 10,000 DVD-rental kiosks in the stores of other retailers — a concept made popular by Redbox, a division of Bellevue-based Coinstar.

At Reckless Video, a locally owned store in Seattle's Maple Leaf neighborhood, general manager Zoe Claire hopes to fend off new rivals with a broad selection of movies in a made-for-browsing environment.

Founded 19 years ago, Reckless Video is in a renovated three-bedroom house. The fireplace mantle now displays boxes of Whoppers and Junior Mints, and foreign films line a wall in what once was a kitchen.

When the economic slowdown began taking a toll on the store a year and a half ago, Claire recalls, Reckless Video began selling $100 passes for 40 movie rentals, or $2.50 each; its regular three-day rental rate is $4.50 for a feature-length film. Customers dubbed it the recession pass.

Although rental revenues are down slightly from a year ago, Claire says, Reckless Video saw a surge in new customers after the nearby closure of Hollywood Video. The average daily signup rate has been around 10 new customers for the past two months, she notes, twice as much as before.

"We have people who go to Netflix, but we're instant gratification and we're dependable," she says, referring to the dominant by-mail DVD rental service. "Someone will hold up a movie and ask us, 'Am I going to like this?' And we'll know."

Even so, bricks-and-mortar stores have seen their share of the U.S. movie-rental market shrink. Adams Media Research estimates revenue for the bricks-and-mortar segment fell about 10 percent in 2009 to $4.9 billion, bringing its market share down to 61 percent from 68 percent the year before.

In contrast, DVD kiosks likely captured 11 percent of the market, up from 6 percent in 2008, while subscription services' share edged up 2 percentage points to 28 percent, according to Adams Media Research.

Redbox rents movies for $1 a night at self-service kiosks in more than 19,000 U.S. locations, including Wal-Mart Stores and McDonald's restaurants. A typical kiosk holds more than 600 DVDs with up to 200 titles, updated weekly.

Coinstar projects Redbox's 2009 revenue will be between $760 million and $780 million.

Netflix, which has more than 11 million subscribers, expects to post 2009 sales of $1.67 billion, up from $1.36 billion in 2008. Netflix, of Los Gatos, Calif., also gives customers the option of watching movies on their computers or streaming them over the Internet to their TVs.

A monthly subscription costs anywhere from $5 to $48, though Adams Media Research estimates the average is about $14.

What's more, video Web site YouTube is getting into the movie-rental business. Today it launches a test to help promote some movies that will be shown at the upcoming Sundance Film Festival in Park City, Utah. A 48-hour rental for the first five films will cost $3.99.

At Scarecrow Video, a locally owned store in Seattle's University District, about 130,000 titles are arranged under some 1,500 headings, including more than 400 director names.

Sales are down about 20 percent from 2007 levels, says general manager Kevin Shannon. "We're holding our own." He attributes the store's staying power to its broad selection and knowledgeable staff.

"When you're browsing, you don't necessarily know what you want, but sometimes the perfect thing finds you," he says. "That kind of experience doesn't happen online."

Still, the store is hardly immune to nontraditional rivals. "We'll see people come in and browse so they can make a list for their Netflix account," Shannon says. "That's really annoying, but mostly, it doesn't happen."

Jon Nyberg, a retired house painter who lives in the University District, recently visited Scarecrow for a regular Wednesday promotion — two movies for the price of one.

He picked out "The Hangover," "Easy Virtue" and "The Brothers Bloom," and was looking for a fourth.

Nyberg says he enjoys talking with the store's staff.

"Most everyone knows me, and they're extremely nice," he says. "I set aside an hour to come here and browse. After that hour, I'll have the movies I want."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com