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THE MORNING BUZZ: Decline in Rentals Foreshadowing New Video Paradigm?

24 Aug, 2002 By: Kurt Indvik

Rental revenue has fallen short of same-week activity the year prior for eight straight weeks now, according to Video Store Magazine market research.

And while our very careful and cautious market research team advises me not to read this as a major trend -- yet -- the numbers are beginning to say something about the (possible) changing nature of the home video business.

This week's research report (see page 21) from Melinda Saccone, senior market research manager, mirrors what we have been hearing for months now. DVD's share of rental revenue is rising dramatically, but not enough to counter the similarly dramatic fall of VHS rental revenue.

In July, for instance, DVD accounted for about 40 percent of all rental spending, or some $320 million; that's up from 23 percent at the beginning of the year. Year to date, revenue for DVD rental is up 150 percent over last year at this time.

Meanwhile, rental revenue for VHS in July was down a little more than 40 percent, to about $483 million.

The combined DVD/VHS rental total in July was down some 12 percent from last year. Year-to-date rental spending is down more than 6 percent.

Naturally, one begins to wonder why this is happening and whether the factors contributing to this decline (if we can confidently identify them) are short term or a part of the evolution of the home video marketplace from a rental to a sellthrough paradigm.

Of course, one might think the biggest possible factor would be DVD sellthrough activity taking dollars away from the rental business.

Going into 2002, video sellthrough as a percentage of overall home video revenue had reached parity -- or exceeded it -- with rental. Regardless of whose 2001 year-end numbers you looked at, DVD was already accounting for 50 percent or more of that sellthrough volume. Consider that in relation to the fact that DVD player penetration only reached 25 percent or so of U.S. homes by the end of the year in 2001 and is expected to reach 40 percent or better by the end of this year, and you can see where DVD sales could be going in relation to the overall business.

DVD also has allowed retailers to increase their copy depth of new releases. According to Video Store Magazine market research, retailers carried almost 56 percent more copies of the top five rental debuts in the first half of 2002. This comes, certainly, at the expense of catalog titles, which can bolster rental business during weeks where there are no significant new releases debuting.

These are only a few factors in consideration of what may be a significant trend.

Stay tuned.

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