Rollover Movies

Strategic PlanningMay 21, 2008

2

Rollover Outline

What are current problems with HV subscription plan?

How is Rollover different?

Is there a market potential?

What would the Price structure look like?

Strengths of Rollover New Financial Model

Conclusions Recommendations

Rollover Movies 3

MVP as a subscription program shows no growth except with

incentives

MVP appears not to support customer retention MVP appears not improve customer loyalty MVP has customers that are high abusers of the

program New MVP members have abused the program by

joining MVP with the intro price of $14.99 and then canceling their subscription prior to being bumped to the regular subscription price; this has recently been stopped

4

Not feeling one’s household rents enough movies to justify the cost is the major barrier to

MVP subscription.

Not feeling one’s household rents enough movies to justify the cost is the major barrier to

MVP subscription.

72%

40%

32%

28%

22%

20%

15%

17%

16%

3%

84%

54%

58%

18%

36%

39%

3%

32%

19%

Don’t rent enough movies to make it worthwhile

Always return videos on time

Too expensive in general

Video games are not available as part of the program

Too expensive to get MVP version w/fully available newreleases

Too expensive to get MVP version where there are no late fees

Already a member of another movie subscription service

Waiting for high-volume period before subscribing

Store location is not convenient for you

Been meaning to, just haven’t gotten around to it.

Already familiar withMVP

Not familiar with MVPpre-survey

Q606 Why haven’t you considered subscribing/subscribed to the MVP program?Base: Non-Subscriber Already Familiar with MVP program (n=56)Q626 Why aren’t you interested in the MVP program?Base: Non-Subscriber Not Familiar in the MVP program pre-survey (n=118) * Not asked of non-subs not familiar with MVP pre-survey

Barriers to MVP Subscription

*

5

Not feeling one’s household rented enough movies to justify the cost is also the leading reason why former MVP subs say they stopped subscribing to the program. Rollover makes the

justification.

Not feeling one’s household rented enough movies to justify the cost is also the leading reason why former MVP subs say they stopped subscribing to the program. Rollover makes the

justification.

34%

14%

9%

7%

6%

6%

5%

3%

Did not rent/watch enough movies to justify

Too expensive

Not a good value

Late fees

Personal/family reasons

Trying to save money

Only rent/watch movies during certainseasons/times

Use TV/Cable TV

Q665 Why did you stop subscribing to the MVP program?Base: Former MVP Subscribers (n=199)

Why Stopped Subscribing to MVP

6Q560 Where have you and other members of your household rented movies from in the last three months?Base: Current MVP Subscribers (n=215), Non MVP Subscribers (n=202), Former MVP Subscribers (n=246)

Blockbuster is the retailer most frequently used as a rental alternative by Hollywood Video customers. Rollover challenges Blockbuster by offering a unique switchover advantage.

Blockbuster is the retailer most frequently used as a rental alternative by Hollywood Video customers. Rollover challenges Blockbuster by offering a unique switchover advantage.

11%

3%

1%

1%

0%

0%

10%

25%

11%

1%

3%

3%

3%

9%

18%

8%

0%

2%

1%

1%

11%

Blockbuster

Netflix

Library

Family Video

Local VideoStore

Movie Gallery

Other

Current MVP Subscribers (A) Non MVP Subscribers (B) Former MVP Subscribers (C)

% Have Rented Movies From Specific Competitors In Last 3 Months

Rollover Movies 7

Problem Statement –Growth in MVP Membership only occurs with promotion

MVP Membership and Churn

0

100000

200000

300000

400000

500000

600000

4/23

/200

74/

30/2

007

5/7/

2007

5/14

/200

75/

21/2

007

5/28

/200

76/

4/20

076/

11/2

007

6/18

/200

76/

25/2

007

7/2/

2007

7/9/

2007

7/16

/200

77/

23/2

007

7/30

/200

78/

6/20

078/

13/2

007

8/20

/200

78/

27/2

007

9/3/

2007

9/10

/200

79/

17/2

007

9/24

/200

710

/1/2

007

10/8

/200

710

/15/

2007

10/2

2/20

0710

/29/

2007

11/5

/200

711

/12/

2007

11/1

9/20

0711

/26/

2007

12/3

/200

712

/10/

2007

12/1

7/20

0712

/24/

2007

12/3

1/20

071/

7/20

081/

14/2

008

1/21

/200

81/

28/2

008

2/4/

2008

2/11

/200

82/

18/2

008

2/25

/200

83/

3/20

083/

10/2

008

3/17

/200

83/

24/2

008

3/31

/200

84/

7/20

084/

14/2

008

4/21

/200

84/

28/2

008

5/5/

2008

To

tal

MV

P M

emb

ersh

ip

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Ch

urn

Rat

e

ON_PROGRAM Monthly Churn

Since January 2008 we have lost 94,311 subscribers; this number is now higher

In 2008 we had Phase II and III Store closures

The only times we show increased membership is when we run an in-store promotion (ARC amnesty or contest)

Since January 2008 we have lost 94,311 subscribers; this number is now higher

In 2008 we had Phase II and III Store closures

The only times we show increased membership is when we run an in-store promotion (ARC amnesty or contest)

Store Closures

Rollover Movies 8

Problem Statement - Reimbursements average about 28K per week (2)

Reimbursments by WeekCall Center and Store Level

Source: Suprtprd and Gaurdian

($50,000)

($40,000)

($30,000)

($20,000)

($10,000)

$0

3/3

1/2

00

8

4/7

/20

08

4/1

4/2

00

8

4/2

1/2

00

8

4/2

8/2

00

8

5/5

/20

08

Store Level Call Center

Reimbursements reduce the MVP RPC by 6 to 13%. Reimbursements illustrate the weakness of the current program.

Reimbursements reduce the MVP RPC by 6 to 13%. Reimbursements illustrate the weakness of the current program.

Rollover Movies 9

EDRC Has not been popular among Hollywood Customers either

In March 2007, the top EDRC store took in $22,168. In the same time period, the Top 20th Store took in $3,578 thusEDRC depicts limited appeal.

In March 2007, the top EDRC store took in $22,168. In the same time period, the Top 20th Store took in $3,578 thusEDRC depicts limited appeal.

10

Rollover Definition and Value Proposition

Definition

Guests buy a plan with an allotment of rentals included, if they do not use the allotted number of rentals, they roll over to the next month

Value Proposition

The Rollover subscription program is attractive to guests because it creates customer value through savings and the ‘no use or lose it’ concept and builds customer loyalty because it “eliminates the need to cancel the subscription.”

11

There was a limit on the number of movies you could rent each month, but you could roll any unused rentals over to the next month : How likely would you be to stop subscribing to the MVP

Program if the following happened?

Q751A6 There was a limit on the number of movies you could rent each month, but you could roll any unused rentals over to the next month : How likely would you be to stop subscribing to the MVP Program if the following happened? * Base: Current MVP Subscribers (n=198)

Absolutely certain to cancel

Likely to cancel

Not likely to cancel at all

There is a 27% market potential for Rollover that suggests we test Rollover as a third program

12

MVP: But 1 in 5 often forget about their MVP membership altogether.

Rollover does not have this miscommunication.

MVP: But 1 in 5 often forget about their MVP membership altogether.

Rollover does not have this miscommunication.

Q735 How strongly do you agree or disagree with each of the following statements about the MVP service? Please use a scale of 1 to 5 where 5 is “Strongly agree” a 3 would be “Neither agree nor disagree” and 1 is “Strongly disagree.” Base: Current MVP Subscriber (n=204)

5 - Strongly Agree, 8%

4, 13%

3 - Neither agree nor disagree,

12%

2, 5%

1 - Strongly disagree, 63%

“You often forget about your MVP membership”

13

Price structure (based on competition)

RPC for all Rollover subscription plans is currently priced at $2.50 which is better priced than MVP’s RPC average of $2.00 (which is known to be lower)

Structure is based on no late fees

Testing could help identify the “sweet spot” that will resonate with consumers and help design plans that appeal to the majority of customers

4 DVDs at-a-time MAX of 10/month with rollover $24.99 / mo + tax

Includes: No Due Dates

3 DVDs at-a-time MAX of 6/month with rollover $14.99 / mo + tax

Includes: No Due Dates

14

New Financial Model

NOTES1. This data is from Faber 10/08/07.2. The data was sorted by active members so that we could develop a model that would allow us to estimate the percentage of MVP consumers that would switch over to the high-mid/low rollover programs.3. This analysis only is looking at MVP customer switchover and does not account for New customers, therefore we did not adjust any of the percentages.

Rollover has a switchover advantage

No need to offer an incentive

Rollover has a switchover advantage

No need to offer an incentive

15

Rollover Strengths

We have a program that is unique from our competitors;

Rollover is kept simple (avoidance of guest confusion);

Differs from EDRC in that customers do not have to pay the upfront cost, but pay monthly;

Eliminates the need to cancel the subscription based on usage thus improving churn;

Roll-over creates a monthly fee that further encourages steady patronage;

The POS can be configured to handle the program requirements;

Rollover does not have the MVP seasonal affects with MVP subscription rates dropping in the summer months

Rollover incorporates switchover costs

16

Rollover versus MVP

MVP increases invoices and rents, but only marginal lift in Revenue

Rollover margins are better priced than MVP

Rollover is simple to communicate MVP puts pressure on product availability,

not sure the effect of Rollover Rollover is recognizable with cost savings

such as rollover minutes and in financial markets

17

41% of MVP subs say that “services just like the MVP program” are easily available to them, while 26% disagree.

Rollover is innovative.

41% of MVP subs say that “services just like the MVP program” are easily available to them, while 26% disagree.

Rollover is innovative.

Q735 How strongly do you agree or disagree with each of the following statements about the MVP service? Please use a scale of 1 to 5 where 5 is “Strongly agree” a 3 would be “Neither agree nor disagree” and 1 is “Strongly disagree.” Base: Current MVP Subscriber (n=204)

4, 17%

2, 9%

1 - Strongly disagree, 17%

5 - Strongly Agree, 24%

3 - Neither agree nor disagree/Not

sure, 33%

“There are services just like the MVP program that are easily available to you”

18

Conclusions

The appeal of Rollover is that the consumers do not lose anything

HV regains better controls over the subscription program thus stopping new subscription members from abusing the system

This initiative is innovative and unique in a mature market

Attract new customers that typically don’t belong to a subscription program

Attract customers that defected to Blockbuster and Netflix that find value in cost savings

Rollover will decrease the effects that our HV subscription plan customers encounters in summer months thus improving rentals in this period as well as stabilizing rentals in all periods

Rollover is easy to communicate to guests using an ‘elevator pitch’

Rollover Movies 19

Recommendations

Open a new job with IT to begin testing the POS system for supporting this new third subscription program

Begin working aggressively with Marketing on POP that supports this program

Begin testing in 2 to 3 districts Do not use MVP tactics to attract

consumers; let them make the decision to join