The landscape of music and video sales and rentals has changed dramatically here, with smaller players dwindling in number and national companies seeking ways to stem losses as formidable competition from Internet ordering and delivery methods blossoms.

The empty shell of a recently-closed Spokane location of a Hollywood Video store operated by Wilsonville, Ore.-based Movie Gallery Inc. at a prominent Division Street retail center stands testament to the difficulty such companies face.

When the decade dawned, some 35 video rental and sales locations were listed in the Spokane Yellow Pages. In the current phone book, there are fewer than 20 listed here, at least four of which have closed since the listings were compiled.

Among the players no longer in the fray are a number of Premier Video stores, a now-defunct local video-rental chain that operated 16 stores in the Spokane area in 1994.

Stores that sell new music have fallen by the wayside, too. There are no music stores located in the Spokane Valley Mall currently, the mall's management office says. Albany, N.Y.-based entertainment giant Trans World Entertainment Corp., which operates an F.Y.E. music store and a Suncoast Entertainment store at NorthTown Mall, recently reported in its third-quarter earnings report that it has closed 12 percent of its stores since the third quarter of 2008. It reported a net loss of $53.8 million for the first three quarters of 2009, compared with a net loss of $59.5 million in the year-earlier period.

Some video rental companies, like Dallas-based Blockbuster Inc., have shuttered stores here that were underperforming or were near other locations as they've sought to stem losses.

"There have been two stores in Spokane that have closed, one in March and one in July," Blockbuster's Dallas-based spokesman, Randy Hargrove, says. He says the decisions to close the stores were based on providing the best market area coverage while not duplicating services too much. "The leases were up, and the stores were in close proximity to others, so we were able to keep serving the customers."

Faced with a difficult credit market at the beginning of the year, Blockbuster changed its strategy for cash-flow management, putting some growth plans on hold, Hargrove says.

"We're a $5 billion company," Hargrove says. "So, if you look at what we did last year for 2008, we were operating the company looking for growth. We improved same store sales for the first time in eight years. Going into 2009 with tight credit markets, we were forced to rework credit arrangements; where we had been looking for growth, it forced us to look at managing for cash flow."

Now, however, the company has completed its new financing and is returning to the growth strategies, he says.

In its second-quarter earnings report, Amarillo, Texas-based Hastings Entertainment Inc. said its rental revenues dipped 9.1 percent from the second quarter of 2008. Overall, the company reported a net loss of about $400,000, or 4 cents per diluted share, for the second quarter of fiscal 2009, compared with net income of about $700,000, or 6 cents per diluted share, for the year-earlier quarter.

Expanding competitive arenas

Storefront video businesses are facing stiff and growing competition from services such as that offered by NetFlix Inc., which offers DVD and Blu-ray rentals via the Internet, as well as downloadable movies, typically for a monthly fee, as well as mailing DVDs to customers' homes.

Another source of competition to retail sellers are self-service video kiosks in grocery stores, which typically offer new releases for $1 a day.

In its report, Hastings cited video vending kiosks as a contributing factor to its sluggish movie rental revenues.

"Our movie rental business was negatively impacted by fewer releases compared to the prior year and the devaluing of the price of a rental movie primarily as a result of the growth of rental kiosks renting movies for a dollar per day," John Marmaduke, CEO and chairman of the company, said in the earnings release.

"We think that's affecting the stores more than the online ordering, because (the kiosks) compete more directly" with stores than with online services, says Steve Swasey, vice president of corporate communications for Los Gatos, Calif.-based NetFlix.

Blockbuster is jumping into the DVD-vending fray, too, aligning itself with Duluth, Ga.-based NCR Corp. to launch a line of Blockbuster Express branded in-store movie kiosks. Hargrove says the company expects to have about 2,500 of the kiosks located mostly on the East Coast by the end of this year, and 7,000 installed by the end of 2010.

Some grocers here, like Trading Co. Stores, which operates locations in Cheney, at the Latah Creek Shopping Center in southwest Spokane, and in Spokane Valley, still find value in offering onsite movie rentals, Gary Morgan, vice president of the chain here, says. Trading Co. Stores considered replacing its rental services with video kiosks, but has found that operating the rental counter in tandem with other customer service functions works well.

"We have U.S. Mail postal units in each of those stores, we have Lotto, and we cash checks. (Renting DVDs) adds to the services and helps support the cost of having someone in that customer area," Morgan says. The service remains popular, and Trading Co. plans to add a video rental area when it remodels a store it operates in Spokane Valley, at 13014 E. Sprague, he says.

NetFlix, meanwhile, has expanded its presence here, moving its Spokane distribution center to a larger space in Post Falls in 2008, Swasey says. He says video rental kiosks in grocery stores haven't affected NetFlix because they appeal to a different market sector than online ordering. Its Post Falls distribution center now employs between 18 and 20 people, up from 10 about three years ago, and ships about 19,000 movies each day, and Swasey says having distribution centers that can get movies delivered with a one-day turnaround drives subscriber growth.

He says that NetFlix's sales have continued to grow nationwide at the rate of about 28 percent over the last year, and it is projecting revenues of $1.7 billion this year, up from $1.4 billion at the end of 2008.

Even as it closes stores around the country, Blockbuster Corp., which has eight stores in Spokane County, is seeking to get into the front of the movie lineup by aligning itself with new technology, in the form of videos downloadable directly to Blu-ray and High Definition movie players that Samsung is rolling out this fall.

"Before the end of year, you'll be able to download (movies from Blockbuster) directly to television through TiVo DVRs and Samsung Blu-ray players," Hargrove says.

NetFlix also offers movie downloads to computers, direct-play devices that connect to televisions, and some television sets, Swasey says.

Hargrove says that though Blockbuster sees a need to participate in online rentals, it still sees its retail stores as a key piece of its business. "The stores remain a central part of our strategy—we are going to have thousands of stores across the country," he says.

"If you look at rentals in retail it's a $22 billion business versus by mail, which is a $2 billion business," Hargrove says. "Everything we're doing is a complement to what we're doing in our stores, but as those other areas are growing, we want to participate," Hargrove says.

Morgan says Trading Co. Stores will continue to rent DVDs as long as the service offers a convenience to its customers.

"For how long? Who knows?" he says. "DVDs may become a thing of the past, it changes so quickly."