The market for Blu-ray and DVD rental in the United Kingdom is expected to plunge by 22% in 2013, as half the country's Blockbuster video stores shut down in a restructuring initiated by the company's new management.

The UK market for physical video rental will drop to £202 million in 2013, down £57 million, or 22% from £259 million in 2012, according to a newly updated forecast from IHS Screen Digest. While the market is generally on the decline, 2013 will bring the sharpest predicted annual decrease for the 11-year period from 2007 through 2017, as shown in the attached figure.

By the end of 2013, only 264 Blockbuster stores will be open in the country, down 50% from 530 in 2012. Blockbuster is the largest video rental chain in the country.

"The year 2013 is set to become a watershed for the UK video rental market as a result of the wholesale closure of Blockbuster UK stores," said Tony Gunnarsson, senior video analyst at IHS Screen Digest. "The massive downturn in the store-based video rental market represents a significant loss to the video market and will result in a major decline and radical transformation of the UK video market overall. From 2013 on, the UK physical-video rental business increasingly will be dominated by online rent-by-mail subscription services."

Both DVD and BD transactions are due to decrease across the store-based sector this year. DVD rentals will fall by a steep 53.2% to 15.4 million. BD is set to drop by an even larger 61.3% to 2.8 million respectively.

After filing for administration in January 2013, Blockbuster's administrators Deloitte announced two separate rounds of store closures, including some 224 sites. In February 2013, supermarket chain Morrisons purchased 49 of these former Blockbuster stores in its drive to increase its store presence in southeast England.

Out of the remaining Blockbuster stores, Gordon Brothers acquired a total of 264 locations, including a number of Blockbuster outlets earmarked for closure that will now remain open.

In 2012, rental stores were responsible for 41.3% of the video rental market based on consumer spending. In the latest forecast for 2013, however, the store-based sector is now projected to generate just 24.7% of the overall market. This tilts the market toward the online sector, which will see its share of market increase massively from 58.7% in 2012 to 75.3% this year.

At the same time, the lost rental business won't result in customers that used to rent at Blockbusters automatically signing up to become rent-by-mail customers with online providers, the analyst believes. Rather, those customers are more likely to turn to a host of other video platforms, primarily pay-TV services.

In the longer view, the UK rental market will return to a normal trend of decline after 2013, with spending on renting physical video shrinking at an annual rate of under 5% until 2017. By then, the retreat in spending is expected to be slightly more negative at 7%.

Story filed 23.04.13