Video games booming at Blockbuster

Todd Barton and T.J. Hawkins braved a brutal thunderstorm recently to keep a date at their local Blockbuster store in Plantation, Fla.

The 13-year-old boys didn't risk a soaking just to rent a movie. They came to play games. Video games.


Todd and T.J. are competing in Blockbuster's summer video game competition. Recently, they played Sonic the Hedgehog 3.

Players in Plantation got four minutes to guide their character over cliffs, underwater and across a three-dimensional checkerboard.


Some kids danced at the controls. Others bore down, hard in concentration. Mothers cheered from the sidelines.

Video games, after all, are serious stuff. Just ask Blockbuster.

"Interactive software is quickly becoming an important part of our business," Blockbuster executive George Johnson told shareholders at the company's annual meeting this spring in Fort Lauderdale, Fla.

It's easy to see why. The video-game industry has mushroomed into a multibillion-dollar business in recent years.

The sale of game machines such as Sega Genesis and Super Nintendo and the individual games themselves -- Mortal Kombat, NBA Jam and the Sonic series, among others -- represent the bulk of those revenues.

But video-game rentals represent a large and growing business, too. Rental revenues now total $1 billion to $1.5 billion a year, according to industry estimates.

Blockbuster has responded by carving out special game zones within its video stores. The first game zones opened a year ago.

Today, about 420 Blockbuster stores -- or one out of nine stores systemwide -- have special sections devoted to video games.


Video games now represent 8 to 10 percent of Blockbuster's total video store revenues, said Greg Fairbanks, the company's chief financial officer, and that contribution is expected to grow in coming years.

Blockbuster isn't moving ahead just on the retail front.

In January, Blockbuster snapped up a 20 percent stake in Virgin Interactive Entertainment, a California company that makes video games, for $30 million.

Blockbuster also is investing in new technology that could make video games easier to rent and more popular to play.

"The company is starting to put the pieces together to make its move into the video game market," said Craig Bibb, an analyst with Paine Webber in New York. "They are signaling their arrival."

Consider what's happened in recent weeks:


Newleaf Entertainment of Deerfield Beach, Fla., a venture backed by Blockbuster, announced plans to test a technology that will allow stores to reproduce video games on demand.

Newleaf and Sega of America, a leading game maker, plan to introduce the system in August in up to 15 Blockbuster stores somewhere in the Southeast.

By virtually guaranteeing every fan a rental copy of the video game they want, Blockbuster could win new customers and boost revenues.

"If you know you'll be able to get the game of your choice, that will make Blockbuster a much more attractive choice," said Robert Carberry, the former IBM executive who joined Blockbuster in March as vice president of technology. The system has a second, consumer-friendly component.

Newleaf has developed a video system for stores that allows children to browse electronically.

"Newleaf should help expand the market," said Mr. Bibb, the New York analyst.


Catapult Entertainment, another company backed by Blockbuster, has promised to launch a video game network by Christmas that will link players over the telephone.

The system could boost the popularity of video games by making it easier for players to compete against one another. Competition is one reason people play video games, according to Blockbuster research.

In March, the company interviewed 502 video game players between the ages of 8 and 20 who also were Blockbuster members. Forty-two percent said they held their own game tournaments.

Blockbuster executives say their research also shows that most players rent video games before buying.

"What appears to be evolving is a buying pattern in which people rent two or three times before they buy," Mr. Carberry said.

Nintendo of America, the other dominant game manufacturer, bowed to that trend recently when it decided to scrap a policy that discouraged rentals.


"We basically looked at the hard numbers," Nintendo spokeswoman Perrin Kaplan said. "Staying out of the rental market was like Budget refusing to do business in airports."

Industry executives and analysts cite several reasons for the growth of game rentals. Price is the biggest factor, they say. Popular game titles often sell for more than $50. At Blockbuster, games rent for $4.

Those rentals don't necessarily mean fewer sales. And in that sense, video games differ from movies.

Children will often buy a game they like so they can master it, industry executives say. For some games, that may take 100 or so hours of play time.

Blockbuster executives say they still are learning about consumer preferences in video games. That's part of the reason the company is staging this summer's video game tournament.

"We think we'll pick up more insight this summer as the world tournament evolves," Mr. Carberry said. "Over time, one of Blockbuster's strengths in this whole area will be its understanding of demand patterns for certain types of entertainment, including games."