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THE MORNING BUZZ: You've Come A Long Way, DVD

14 Dec, 2001 By: Kurt Indvik

During a visit with a group of studio executives this week it was remarked that this holiday season seems to have been even more frantic than usual. We all agreed it was the huge momentum of DVD, enhanced by Hollywood's strong marketing push for top theatrical titles in the fast-growing format and the continuing price drop of DVD players coming on strong for the Christmas season.

By the end of the year DVD console households are expected to reach more than 24 million, about double market penetration last year, according to Adams Media Research. DVD software unit sales will top 304 million. It was a breakout year for DVD and next year the pace is expected to be the same, as DVD console households are expected to reach 36 million penetration and retailers may sell as many as 455 million DVDs.

Now I'll sound the refrain I expect to hear throughout next year, and that is…let us tread carefully with VHS. How far will the transition from VHS to DVD go, and how fast?

These will be significant questions that will guide how studios market and how retailers buy and manage their floor space in home video for the coming year. Hollywood may shout about DVD records being broken (and we in the trade media may chime in), but VHS will quietly drive about 65 percent of sellthrough unit sales in 2001, according to Adams Media Research, with 540 million units at sellthrough versus DVD's 304 million. In 2002 that figure comes closer to parity as VHS sells an estimated 503 million units and DVD 455 million.

However, this may be a somewhat misleading indicator, since a significant portion of the VHS sellthrough may be accounted for in the dated product discount bins at mass merchants and specialty stores alike. Indeed, duplication of new VHS tapes is projected to drop off more quickly than sales (which include older cassettes). Cambridge Associates projects VHS duplication to drop more than 80 million units between 2001 and 2002.

Adams projects DVD and VHS sales will reach parity sometime in 2003.

Still, we discount a half billion VHS sales at our peril. Certainly, mass merchants have not forsaken VHS for DVD, according to Video Store Magazine's own recent study (VSM, Nov. 25-Dec. 1). And it's safe to say the blockbuster family and kidvid titles will appear on both VHS and DVD throughout 2002 and likely 2003.

The "load balancing" of VHS to DVD will be the greatest challenge to video specialty stores in 2002 and 2003 as the industry continues to manage this transition that may turn out to be not a complete transition at all.

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