Twenty-five years ago, the home entertainment industry was at a turning point. Videocassette rentals, the backbone of the business since it was launched in 1977, were in a slump as the novelty of renting movies wore off. Hoping to revive the business, a consortium of studio executives led by then-Warner Home Video president Warren Lieberfarb developed a new business strategy that involved putting movies on a five-inch disc, which consumers would purchase rather than rent. The soon-to-be-launched DVD was the talk of CES 1997 in January, and dominated the show floor in July at the annual Video Software Dealers Association (VSDA) convention. Not all studios were onboard, and few realized at the time just how enormously successful the DVD would be — and how it would ignite a digital revolution in entertainment that has given us streaming, Netflix and even the ability to watch movies on our phones.
In an over-the-top video market, the traditional video store has all but disappeared. With the exception of (shrinking) mall-based f.y.e. stores, standalone retailers selling and renting movies and TV shows on DVD and Blu-ray Disc are a novelty.
But Glenview, Ill.-based Family Video – which celebrated 40 years of business last October – continues to survive, reportedly generating $450 million in revenue in 2017 operating about 700 stores in rural areas throughout the Midwest, Southwest and Northeast.
“Eventually the video business will have to go away, but people were telling me that back in 2000,” Keith Hoogland, president of Family Video, told RogerEbert.com in a rare interview late last year. “In 2010, Blockbuster and Movie Gallery and Hollywood Video all closed. Now it’s 2018 and we’re still standing.”
Hoogland may profess a love for nostalgic movies like Rocky, Top Gun and Caddyshack – which Netflix doesn’t stream – while offering consumers without high-speed Internet an old-school home entertainment option (with late fees!). But that’s just window dressing.
The son of Family Video founder Charlie Hoogland, Keith is not tone deaf to the realities of brick-and-mortal video. The market generated about $317 million in 2018 – down 18.5% from 2017, according to DEG: The Digital Entertainment Group.
Peruse the website of Family Video parent – Highland Ventures Ltd. – and a shrewd business strategy emerges highlighting the chain’s ability to survive when high-profile competitors Blockbuster, Hollywood Video and Movie Gallery shut their doors long ago.
Highland owns the property most Family Video stores and more than 500 third-party tenants operate from. And it’s acquiring more beachheads.
“Family Video is essentially a real estate company,” Douglas Green with Philadelphia-based real estate company, MSC Retail, told The Philadelphia Inquirer. “It’s pretty brilliant.”
Highland’s Legacy Commercial Property (LCP) unit manages more than 700 properties in 19 states with commercial real estate valued at more than $650 million.
Franchise brands include Marco’s Pizza, Stay Fit 24 (which Family Video launched in 2008), Total Wireless (2018), and kiosk-based Highland Pure Water & Ice (2017).
LCP claims to generate $2 million in accretive revenue just negotiating more than 100 lease transactions a year. It also negotiates construction contracts and manages tenant buildouts.
“The LCP Team is growing and currently seeking to double over the next 12 months,” says the website.
Hoogland says that as the video retail/rental business has slowed, the company downsized floorspace dedicated to packaged media and leased it to businesses that mix well with video – like pizza.
Highland is now the largest Marco’s Pizza franchisee.
“I’ve got static rent. It isn’t moving,” Hoogland said. “Then I realize that I don’t need 7,000 feet. So, I rent out 2,000 to another business, perhaps Jimmy John’s or Subway. My rent just went down 15%, along with my common area maintenance. That’s what we call rightsizing. I control my rent by the size of the building, and the money I make from renting out space becomes part of the profit of the business.”
Hoogland said that as the home video rental market cooled, Blockbuster couldn’t afford to remain open due to escalating leases on store locations it didn’t own. Family Video revenue, Hoogland said, only began to decline over the past two years.
“That’s when we began rightsizing,” he said. “Most of our 700 lessees have another business right next to them.”
Hoogland said the move toward business operator/landlord smoothed over financial lenders (i.e. banks) increasingly uncomfortable with the shrinking video store landscape.
“Banks don’t like lending money to video stores because they lose their value quickly, but they love loaning money to real estate,” he said. “As we kept rolling, we mortgaged buildings to fund our expansion.”