DVDS HIKE VIDEO STORES' PROFITABILITY.

Byline: Greg Hernandez Staff Writer

Independent video stores might exist in the shadow of the Blockbuster and Hollywood video chains, but the DVD boom is breathing new life into these single-store operations, according to a study released Tuesday by the Video Software Dealers Association.

The stores are enjoying higher profits as a result of a spike in rentals, which increased by 6 percent in 2002 - a jump that is credited largely to DVD rentals, since VHS rentals declined by 21 percent last year.

Also helping the stores is a drop in their costs because DVDs are cheaper to make than VHS cassettes. Another factor is that they have been able to increase their average rental price.

``DVD has been a great boon to the independent store,'' said study participant Ken McAleer, owner of Video Headquarters in Keene, N.H. ``Because it's a lower-cost product for us, it has enabled us to bring more copies than before and have more of a level playing field with the bigger chains.''

``DVD has also re-energized consumers,'' McAleer added. ``The enthusiasm for watching movies has increased. Customers come in and are exposed to all the new movies coming out and are revitalized. The studios are also making an event out of releasing even their older titles and the promotion just drives people into the stores. That wasn't happening with VHS.''

The study, based on a survey of more than 100 VSDA-member video stores in the United States and Canada, showed that stores also experienced strong growth in both new and previously viewed DVDs.

Also fueled by DVD, sales of new videos jumped from 4.5 percent to 7.5 percent at a typical store while sales of previously viewed videos increased from 5.6 percent to 6.4 percent.

``This is a business that saw a mass exodus a few years back,'' said Mark Fisher, the VSDA's vice president of membership. ``It looks like the retailers who had the stamina, strength and business skills to stay in the business fell into a windfall.

Higher profits were not necessarily the result of higher prices. Instead, key revenue drivers at high-profit stores were a greater number of annual transactions, higher revenue per customer transaction, product cost control and greater employee productivity.

``This report demonstrates that video rental stores have built a sustainable business model to satisfy consumer rental demand and that there is ample opportunity for video stores to increase their earnings even further,'' VSDA President Bo Andersen said in a statement.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com