Top dvd rental 2005

We hadn't heard that the game rental business at most video stores needed fixing until speaking with the top executives at GameFly, an online games rental business that launched in November 2002. "The gaming rental world is broken," says Jung Suh, co-founder and vp of content and strategic alliances. The brick and mortar venues have very limited selection and availability, and they rent games in three- or five- day windows that are appropriate for watching DVDs, not playing.

"People want to play games for a long time," says David Hodess, CEO and president. And so, the GameFly model mimics the successful NetFlix approach, by letting users subscribe to the service for $21.95 a month and receive by mail up to two games at a time to play for as long as they like. They receive and return the titles postage paid. Gamefly manages costs by mailing only the game discs and making the manual available online. Members maintain a "Game Q" at the Web site, which lists the next titles they most want to receive, so GameFly automatically sends it when the member returns one of the rented titles.

But is there a real demand for Web-based game rentals? The privately funded GameFly remains mum about solid subscriber levels. Hodess says only: "We've doubled in three months and expect to double again by the end of the year." The major obstacle to this model, he admits, is educating consumers on the subscription model for rentals generally. Nevertheless, he will say that in less than a year, GameFly's membership rolls are "well over 5,000."

Those are serious numbers for a new model, and while several smaller attempts are being made to replicate NetFlix's success in the gaming field, GameFly is the most advanced and ambitious. With a 20-person staff working out of Santa Monica offices and funding from a veteran Silicon Valley venture capitalist, the year-old company also boasts experienced managerial talent. Hodess himself ran the Cooking.com ecommerce site, while GameFly co-founder Sean Spector was VP at DrKoop.com and worked on business development for Disney Interactive. Suh has been a producer for Activision, EA and Disney.

Hodess argues that the rental system is becoming increasingly important to gamers, especially a hardcore segment that wants to play them all but can't afford to buy them. "There are a lot of folks constrained by budgets and they want to play fifteen games but buy only four or five. This is how to fill that gap."

A Broader Taste in Games

One of the major limitations of video store game rentals is selection, and so the 1,000-title GameFly catalog promises a deep and wide inventory in order to satisfy the need for the latest blockbusters as well as the harder-to-find titles. Hodess claims that he will sometimes buy thousands of copies of a top tier title to satisfy heavy demand and only one copy of others.

Nevertheless, Suh argues that rental patterns from his customers show that player tastes in gaming may be more complex and varied than the blockbuster-driven bestseller lists suggest. "It's a lot broader than you would think," with many requests for back catalog titles. Word of mouth among customers at the GameFly site itself can fuel interest in an obscure title as well, giving games like the long-forgotten console version of the RPG title Wizardry a new life. "We are seeing different patterns from what the industry is used to because for the first time we are offering those titles," says Suh.

GameFly clearly appeals to the hard core. The subscriber base generally is in the 18- to 35-year-old sweet spot of males, about two-thirds of whom purchase five or more games a year. With such a demanding base of core gamers, Hodess and Suh have to stay on their toes in order to get gamers the titles they want, when they want them. The major titles are available for rent on day and date of retail release, and GameFly uses first class mail to get the games in member hanbds within one to four days. Hodess claims that he is stocking enough copies of the most demanded titles to satisfy users. "We looked at our substitution rate, how many times you don't get your top choice and that is generally in the 5% range. So, 95% of people are getting their first choice."

Can a Game Fly?

While GameFly looks a lot like the successful NetFlix, the Web-based, rent-by-mail model faces some unique challenges in the game arena it does not have in the DVD market. For instance, inventory costs are much higher for a games library. GameFly buys its titles both from wholesalers and directly from some publishers. In the DVD world, revenue sharing on rental fees helps keep the raw cost of discs low for video stores.

Offline video distributor and transaction tracking service RenTrak did begin a revenue sharing system for brick and mortar stores last year, but Hodess has no such arrangements with publishers amd doesn't think it is necessary. "We don't really pick up any movement towards revenue sharing from the publishers, and we're not counting on it," he says. "Our model is not predicated on any revenue sharing. We do know our break even point. We'll probably be close to break-even by the end of 2004 and sometime in 2005."

The marketing plan remains modest for now, with keyword buys at Google and MSN and a deal with GameSpot to add a rent option next to the buy button for game titles. Print campaigns and exposure on TechTV may be coming soon. Publishers have shown interest in doing some title promotions on the site, "but we are going to wait a little bit," says Hodess. For now, gamers themselves seem to be discovering this new model on their own. In analyzing referrals to the service, Hodess finds, "Most of our subscribers come from the 'Unknown' category. We think word of mouth is really strong."

Contacts: David Hodess and Jung Suh, via Kehau Rodenhurst, Faiola Davis PR, 310/248-5454

[Copyright 2003 PBI Media, LLC. All rights reserved.]