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The transformation of music and movie retail and rental stores

Technology has changed the way several businesses operate. This disrupted certain industries and changed business models. Thus, businesses had no choice but to adapt to the transformation in order to survive, which in turn changed customer preferences. For instance, since the introduction of mobile phones, pagers became obsolete. Likewise, DVDs and CDs rapidly faded away with the onset of torrents and digital streaming.

There was a time a decade ago when the movie and music stores were crowded with music lovers. But presently such music stores have faded away. While theatrical, subscription streaming and video on demand gained a significant share in the past 5 years. The DVD sales, brick and mortar and physical subscription lost among consumer spending and led to the shutdown of numerous physical movie and music rental stores. The fall of music and movie retail stores in the US is shown below.

The biggest failure in the US music and movie retail and rental stores industry was that of the Blockbuster LLC.  This was the most popular home entertainment company in the West (1992-2007) and was shut due to reduced sales in comparison to the Dish Network Corp. in 2014. The reason behind the failure was Blockbuster’s inability to include technological and consumer behaviour patterns in its business model. The US-based Blockbuster failed to change with the changing times and late fees formed a major part of its revenues. This disenchanted consumers. In addition, customers disliked the inconvenience of driving all the way to a store. While Blockbuster failed to change completely, there were others that tried to change the business model but are still failing.

As downloading became a trend, people preferred to store music on their laptops or iPods and googled for information rather than waste shelf space on DVDs. Further, numerous individuals prefer free music and movies, though few buys this legally. The mediums such as the YouTube helped people to fetch the rarest songs without paying a penny. In addition, easy availability of fast broadband led to the growth of online streaming, downloading of content and rental services such as iTunes. The online services offered greater options with no 'new release' sign boards and little or no membership and late fees. The cost difference amid online streaming and rental of DVDs/CDs by Netflix is shown below.

In order to survive in the digital world Redbox started a new concept of kiosks, where one can rent a DVD from kiosks machine like an ATM, but still, its revenue is declining. This is because consumers have moved to digital subscriptions. If a kiosk is closer, a customer would still prefer online streaming since it provides access to a wide variety of content rather than a single DVD. The decline of Redbox’s revenue and kiosks is shown below.

Identically, the downfall of the Transworld Entertainment Corporation, a physical subscription based company is represented in the below chart.

Additionally, other stores diversified their offerings, Planet M (India) started selling mobile phones and Landmark and Crossword expanded into stationers and books. Furthermore, others in the Indian market such as Hi-Hat, Groove, Music World and Time Out failed to cope up. This was similar to the Blockbuster LLC, which eventually shut operations. While few companies could not survive, others such as Netflix are still present as it introduced a new segment of online video streaming at the appropriate time. However, its music store segment's revenue has been on a decline year after year. 

Thus, with the rise of digital media players musical stores face competition from Hot Star, Hulu, Apple TV, Roku, Amazon, Boxee, etc. and several new and small entrants like gaana.com, Wynk, SoundCloud, Amazon Prime among others. Most of these players registered an increase in the number of free users. However, paid users remained considerably low, for instance, Pandora Media Inc. has only 25% paying members, while few others have lesser paid subscribers. This is because consumers have various options to download music and videos illegally. The piracy in physical or digital format has always been the biggest concern for music and movie rental and retail chain stores. According to the data (www.theguardian.com), 95% of the music and video available online is downloaded illegally. Although, few companies such as Netflix with around 90% paid users represents better EBITDA margins.

Hence, music and movie stores that changed their business models and adapted to the new technology and consumer needs survived and flourished. Therefore, firms like Netflix that rely on subscription fees and source exclusive content for their paid users subsisted. Although, few generated revenue through advertising, others practised a combination of advertising and subscription fee model.

The technology has created a whole new and complex business environment for these players, where generating revenue is not as simple as renting DVDs but is a mix of generation of traffic on websites, sourcing the right digital content and liaising with more advertisers. Thus, with the entry of new online players, the margins are bound to reduce and revenues will be shared with a rise in competition. Conceivably, the only party gaining in this changed landscape is the consumer.

 

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