While many video-rental store operators anticipate rough sailing as technology changes the home-entertainment business climate, one Winnipeg owner has used technology to help his business weather the coming storm.

After only a year in operation, Cinemail.ca's online DVD rentals have grown to account for about 20 per cent of his business, says David Ringer, owner of Movie Village in Winnipeg's Osborne Village.

"It was like adding another store without adding any overhead," says George Galaugher, manager of Cinemail.ca, Movie Village's Internet division.

Many mom-and-pop video stores have already sunk in the wake of market changes. In the early days, the video-rental business was dominated by independent stores, but they now account for only 38 per cent of North America's video home market, according to the Video Software Dealers Association (VSDA).

J.J. Ali, Business Edge

Movie Village's Cinemail.ca Internet division, managed by George Galaugher, has helped the Winnipeg video-rental store keep its customers satisfied.

First big rental chains such as Blockbuster and Rogers Video crowded into the market. With deeper pockets and higher volume, these operations could afford larger premises and carry more titles, stock more duplicates of new release titles and offer lower prices.

Then the DVD revolution made higher waves, cutting into rentals as consumers discovered they could buy their favourite movies at big-box stores such as Wal-Mart or Costco for little more than the rental price.

Growth of Internet use coupled with lower mailing costs made DVD mail-order rentals economical, swamping many small independent stores.

Video-on-demand and Internet downloading threaten to sink the $20-billion retail video rental and sale industry in North America.

Cinemail.ca was launched in 2005, and although Ringer is reluctant to share data that could benefit a competitor, he will share one example of how successful it is so far.

Last year, he unexpectedly had to close a profitable Movie Village outlet following a series of robberies and resulting staffing and safety woes. "Cinemail has replaced the revenue that store was bringing in.

And without the overhead of a second premise.

Augmenting the video-rental store with an online component has made his business more competitive in both arenas, says Ringer.

Movie Village provided the base inventory (now 16,000 titles and growing) and storage space necessary to set up Cinemail.ca, and the initial cashflow to grow the fledgling business.

Cinemail.ca has helped Movie Village enlarge its niche between the chain rental stores, which concentrate on offering many copies of new releases, and small independent stores, whose titles are constrained by cashflow, limited customer base and lack of storage space.

J.J. Ali, Business Edge

George Galaugher, manager of Movie Village's Cinemail.ca Internet division, is kept busy handling online DVD rentals.

Already renowned for its variety of titles, Movie Village has used Cinemail.ca to diversify selection even more.

While it's uneconomical for a store to buy a title likely to rent only once or twice a month to walk-in customers, Cinemail.ca rentals help such a title earn its shelf space.

Right from the beginning, Ringer's business plan differed from the business model of most video-rental stores. He opened the 630-sq.-ft. Movie Village store in 1984 and immediately saw the limitations of a rent-only business.

"Walk into most video stores and you see a small sales rack of duplicate copies for sale," says Ringer. "But from the start, we priced every video to sell as well as rent."

This nurtured a healthy sales business that grew in tandem with the rental business, and positioned Movie Village to capitalize on the recent DVD revolution.

In 2004, Canadian consumers bought three times as many DVDs as cassettes sold in their peak sales year, reports Statistics Canada.

Revenue from wholesaling to the Canadian home-video market hit $1.8 billion, a 12.9-per-cent increase over 2003 - due largely to DVDs. In the U.S., DVDs account for 94 per cent of home video sales and 71 per cent of rentals, according to the VSDA.

By 1989, Movie Village was bursting at the seams, and Ringer moved down the street to a 5,000-sq.-ft. space.

In the early days, adding sales to the business plan paid off. "We found if the rental market contracted 10 per cent, (other) stores contracted by 10 per cent. But we discovered when the rental market shrank, we could make up the difference through sales," said Ringer.

This allowed the business to grow even when competing rental stores had to pull in sails to weather tough winds.

In the '80s, Ringer came up with a deal for customers to rent seven movies for seven days for $7.77 (an idea eagerly embraced by other video stores) and that morphed in short order into a subscription business, which also eventually proved popular with competitors.

"We've had subscriptions for the past 15 or 16 years," says Ringer.

For a fixed monthly fee, customers can rotate their selections and rent as many movies as they'd like. No return deadlines, no late fees, no lining up late at night, elbowing other customers poring over the diminishing titles in the New Release section.

In the '90s, Movie Village developed a modest Internet home page and a small mail-order business.

When the DVD revolution of the new millennium happened, Movie Village had stock, storage room, an Internet presence and experience with subscriptions - an ideal base to start a mail-order business. When DVDs replaced VHS tapes in popularity, it became economically feasible.

"A 51-cent stamp will take a DVD anywhere in Canada," says Ringer. Although most of Cinemail.ca's customers are in Winnipeg, the company mails DVDs to customers in every province and territory. It even has some overseas customers, says Galaugher.

Ringer is undaunted by the growing number of online competitors.

"The store is our bread and butter," Ringer says - and a competitive advantage. "We're getting income other than just by mail."

Online competitors may have more titles, but Ringer's business has the value-added benefits and efficiencies of two businesses operating with one set of overhead expenses.

"We're doing what we're doing and not looking for the customer base Zip has," says Galaugher, referring to competitor Zip.ca. "We're not looking to be the No. 1 (online) service."

Cinemail concentrates instead on customer satisfaction and slower growth. "We're all fans of movies, not just new releases. It's made us a more appealing store. We have the largest selection of titles in the city."

Although Cinemail is the third largest of Canada's dozen or so DVD online rental companies (behind Zip.ca and Rogers Video), it has the highest rating from users, according to the DVD Rental Guide (onlinedvdrentalguide.ca).

Although Zip.ca and Rogers Video Direct carry nearly 40,000 titles each (NetFlix in the U.S. claims to have a 55,000-title catalogue), users praise Cinemail's website, turnaround times and customer service, according to the guide.

"For the next two to three years, I'm very confident," says Ringer. "The online business is just starting and the in-store business is thriving."

Change has been the norm for the whole 22 years Ringer has been in the video-rental business.

"For the past 10 or 12 years, people have had more and more choice in how their entertainment dollar is spent," he says. "And while the video-rental and maybe DVD business in general is not likely to see as much of that dollar as in the past, it's still going to be a viable business ... for the next three or five years."

Industry analysts believe technological change puts today's video-rental market in much the same position as buggy whip manufacturers a century ago when automobiles began supplanting horses for personal transportation.

"One of the main challenges to video-rental retailers is on-demand rentals through digital cable or satellite services," says Lanny McInnes, of the Retail Council of Canada, agent for the U.S. Video Software Dealers Association north of the border. "Consumers can order movies from the comfort of their home at the touch of a button."

The day is not far off when consumers can buy and download video content in the same way as audio content is available through Apple's iPod and iTunes. This is an attractive option for the businesses that produce video content, as they can eliminate the costs of producing, storing and distributing DVDs.

But Ringer believes there will always be a market for DVD sales, as consumers build their personal libraries. As well, the businesses that supply movies have an interest in the health of the DVD sales business, both direct to consumers and through DVD rental stores.

North Americans now spend twice as much buying and renting movies on DVD and VHS as going to movie theatres, - and movie makers currently make more from rentals than downloads, Ringer says.

The DVD market also remains the major source for small independent films. "Today, anybody with a hand-held camera and $500 can make a movie," says Ringer.

The problem is distributing it. Online services such as Cinemail.ca and Zip.ca can introduce the work to a larger audiences.

Ringer's operations carry "local Winnipeg films" that may have only a dozen copies in existence.

And there's psychology at work, too. Any booklover can attest to the boost in spirits in amassing a collection of personal favourites on a shelf and the joy of rummaging through the whole collection volume by volume - a thrill videophiles cannot equal by viewing icons on a computer desktop or perusing a list of filenames. They need DVD covers and artwork for that.

Technology may change at lightning pace, but consumers' habits change slowly, Ringer observes.

While video-store rentals are flattening or declining, the online trend is just starting. The British research firm Screen Digest predicts the online movie-rental market will triple over the next five years and will shortly account for 60 per cent of all rentals.

Video-on-demand promises to be even more convenient than online rental, but distribution remains a problem. Some 80 million U.S. households - nearly three-quarters - have DVD players, but only 22 million have video on demand, says the VSDA in its 2005 annual report.

Even so, "These changes aren't hypothetical," says Ringer. "They're happening right now."

All of these trends will decrease the number of video stores - perhaps eventually eliminate the industry altogether.

While things are on an uptick now, "over five to six years, I'm less confident," says Ringer. Even more independent video rental stores will go under or close as profit margins shrink.

"What I'm hoping," says Ringer," that as the total number of stores diminish, we'll be able to get a larger piece of that small pie."

But, he says, "things change quickly and also in ways you can't anticipate."

And that means there will also be unanticipated opportunities for someone such as Ringer, who's followed trends closely.

(Sharon Adams can be reached at sharon@businessedge.ca)