REPORT PREDICTS GROWTH OF ON-DEMAND SERVICES

CAMBRIDGE, Mass. -- Although some retailers still hold hope for the future of video rental, one new report on video-on-demand (VOD) technology only fuels the pessimists' prognostications."Video has had a good, long run, but I'm afraid it's on the way out," said Don Shaver, manager of a Harps Food Store in Fort Smith, Ark. "In the supermarket business only three things are certain -- groceries, meat

CAMBRIDGE, Mass. -- Although some retailers still hold hope for the future of video rental, one new report on video-on-demand (VOD) technology only fuels the pessimists' prognostications.

"Video has had a good, long run, but I'm afraid it's on the way out," said Don Shaver, manager of a Harps Food Store in Fort Smith, Ark. "In the supermarket business only three things are certain -- groceries, meat and produce. Everything else comes and goes."

The report from Forrester Research, based here, which surveyed consumers and 50 companies involved with motion picture distribution, appears to support his fear.

By 2006, it states, more than 31 million subscribers will have digital cable with VOD services available, and direct broadcast satellite VOD will reach nearly 12 million households.

The results may not be pleasant for rental specialists.

"Homes that have VOD will all but stop renting videos and DVDs," according to the report, because "movie fans will love the convenience of VOD."

It also cites a disturbing example: In one VOD test-market trial, video-store rental rates dropped by 68% in VOD-enabled homes.

This rate, if it were to prevail, could result in a rental market decline of over 20% if VOD does indeed reach its forecasted penetration of more than 45 million households.

But that's still five years away -- the same interval so often mentioned in past projections, which have proven greatly overstated.

Two extreme behavioral patterns delimit the range of supermarket reactions. On one side is the "sky is falling" camp, convinced that the current video rental model has begun its decline to extinction. And on the other is the "who's afraid of the Big Bad Wolf" gang, equally convinced that the model is healthy and that naysayers are merely crying wolf once more.

One appeal of the latter approach is that specialists are already well accustomed to such lupine cries. For much of its over-20-year existence, the rental industry has been seen by many as a transitional delivery system eventually to be supplanted by VOD and/or pay-per-view (PPV).

The deadline for this apocalyptic prophecy has been extended so often that it has become a long-running joke in the industry.

"How badly were supermarkets hit by priceline.com selling groceries?" asked research director and video analyst Greg Durkin, Alexander & Associates, New York, by way of illustration. "I think it's a good analogy."

And supermarkets may be well positioned to compete in the market.

"You have a certain behavior pattern that has been in place for 50 years in supermarkets as we know them today," said Durkin. "So VOD would have to compete not only with the rental behavior that has been in place for 20 years but, on top of that, the grocery store behavior and the impulse rentals that they capitalize on."

But some think that the threat is mounting inexorably.

"VOD on TV is going to be video rental's main competition -- they're just making it so simple," said Craig Hill, video specialist, Harps Food Stores, Springdale, Ark. "Once they lower their price, they'll hammer us."