Someone sent a question whether a video rental business can be a viable business for a small scale operations.

My first major business was a video rental business, long ago when Betamax and VHS were still in vogue (and DVDs were non-existent). I started it mainly because of my passion for movies; I was a big movie addict and watched all the movies shown during the week. The business went well for several years until I sold it off, but had I known what I knew now about the business, I wouldn’t do it.

For one, the video rental business is a low-margin business that relies heavily on volume, which of course relies on the size of your local market. It has huge inventory requirement that can be a cash flow drain, as you need to purchase every single movie released (and several copies at that).

I was able to make the business work because I found a whole new market — corporate offices. I gave my contacts in several big offices a list of my available inventory, and they send me their orders, and the movies are personally delivered to them on Fridays (they have the movies over the weekend). I found a very nice niche by offering corporate workers convenience where the movies they want are sent to them. This was before the Internet, before NetFlix and online ordering became the vogue.

But there is a great demand for videos as the 2005 Video Software Dealers Association annual report indicate:

• In aggregate, consumers spent more than twice as much money buying and renting DVDs and VHS cassettes in 2004 than in purchasing tickets at the theatrical box office.
• Consumer spending on home video in 2004 exceeded $24 billion.
• Sell-through accounted for over $16 billion, an increase of 15% over 2004.
• Rental generated $8 billion, remaining flat with 2003.

The question of course is whether this business is viable for a small business. This is one business that you cannot start with only a couple of thousand dollars or less. And now with Netflix and Blockbuster Online competing with the mom-and-pop video stores, it is definitely much harder. But of course, there is always a chance that a small entrepreneur can beat the big boys in this game!