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THE MORNING BUZZ: Welcome to the Party

10 Oct, 2002 By: Thomas K. Arnold

The fourth-quarter selling season has officially begun, and yet the barrage of press releases that greeted each “milestone” DVD release last year at this time is conspicuously absent.

One supplier who has already scored a big success says he considered issuing a press release boasting of his title's strong first-week sales, but thought better of it because he didn't want journalists to start drawing comparisons with last year.

“It's a completely different market,” he said.

It certainly is — which is why I'm going to make a conscious effort to stay away from comparing initial sales of this quarter's big hits with the fourth quarter of 2001's big hits.

Case in point: Much has already been written about how Monsters, Inc. handily outsold Shrek its first week in stores. But that's like comparing apples and oranges; the DVD market is a lot bigger than it was last year at this time (about 35 percent household penetration, as opposed to 23 percent), and study after study has shown us that DVD households have a voracious appetite not just to rent, but also (and especially) to own.

So of course the Monsters, Inc. DVD outsold the Shrek DVD. The market has expanded. Shrek still did incredibly well last year, considering the size of the potential market, and I'm sure if it had come out this quarter instead sales would have been significantly higher.

I think the real phenomenon we're seeing is that the consumer's appetite for home entertainment is increasing and that our ingrained habit of collecting entertainment is truly shifting from music to movies. I just completed the arduous task of alphabetizing all 1,400 or so of my DVDs — something I never did with VHS. In fact, I never accumulated that many videocassettes — they just weren't something I wanted to hold onto.

Smart rentailers are recognizing this major shift in the public's attitude toward collecting movies and are using their rental prowess as an incentive to get consumers to purchase. Blockbuster is giving away free rentals to anyone who buys a DVD, among several incentives; other savvy rentailers are using similar tactics.

Total Movies & Entertainment magazine includes an MGM feature film disc in every issue – about $7 on the newsstands – and is working on deals with other studios. Columbia Tristar has a deal with General Mills that will soon have kids getting a free DVD in boxes of Cheerios and Lucky Charms. DVD has become a party favor.

The future of this business is clearly in sales. Rentals are becoming a loss leader. “Try before you buy” has become the mantra of the DVD retail industry.

And to lift a quote from those great pop culture philosophers Bachman-Turner Overdrive, “you ain't seen nothing yet.”

Once the household penetration rate for DVD players reaches 40 percent, the doors to the studio vaults will fall open. If you think you've seen a lot of catalog product debut on DVD these past five years, just wait until you see what's coming down the pike.

I see a banner couple of years ahead for DVD sales. Eventually, of course, the bubble will burst — there are only so many collectable movies consumers will buy. After that sales will shift to new releases, simply because everything worth releasing has already been released.

But in the meantime, it is incumbent upon retailers and rentailers alike to capitalize on the DVD purchase boom—however and whenever they can.

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