TK's MORNING BUZZ: Despite Upticks in PPV, Satellite and Video Game Use, Consumers Continue to Rent and Buy Videos at the Same Levels23 Mar, 2001 By: Thomas K. Arnold
INDIAN WELLS, Calif. -- It was an amazing Research SuperSession yesterday at the Hollywood Summit, if I do say so myself.The Video Store Magazine-produced adjunct to the 31st annual International Recording Media Association (IRMA) conference introduced invited studio-executive guests to compelling presentations from DataPlay, the optical storage media with 500 MG capacity, and Enroute Imaging, which is pitching 360-degree "immersive" video that enables to user to see all around a moving object.
But the heart of the Summit, our first joint effort with IRMA, was the Research SuperSession, in which three respected analysts — Judith McCourt, our own market research director; Tom Adams of Adams Media Research; and Ralph Tribbey, our DVD editor and the producer of the weekly DVD Release Report — dissected the home video market in new and different ways.
McCourt presented topline results from Video Store Magazine’s new Consumer Survey. One of the most significant findings, to me, was that consumers are still going to the movies and renting and buying videos at the same levels they were two years ago, despite sharp upticks in pay-per-view, satellite and video game use. Satellite use, in particular, shot up around 50% between 1998 and 2000, and yet the effects on video rental as well as sellthrough were negligible.
Another most interesting finding is that the more frequently consumers rent videos, the more likely they are to own a PC and surf the Internet. So much for the Web driving people away from home video, eh? The study found that VHS buyers, too, tend to be more open to new technologies than one might think.
The study also revealed some interesting findings about DVD users. For starters, 81% of DVD owners have a PC, half with a DVD-ROM drive; and 6% now have more than one DVD player in the house. On average, DVD owners are quite pleased with the value of both buying a DVD and with renting a DVD, but aren’t nearly as satisfied with the selection they find at retail.
"They’re not happy," McCourt said.
Moving on, Ralph Tribbey said that based on first-quarter 2001 release patterns, the year should see suppliers release 5,300 DVD titles, significantly more than the 3,551 they released last year and about 800 more than expected based on "stairstep" year-to-year comparisons since the format was launched. "We took a look at what’s causing this bump and we found it’s across the board —- studios as well as independents like Artisan and Image," Tribbey said.
He noted that the major studios only account for about 27% of all DVD releases. "It’s a wide open demographic," he said of DVD suppliers. Image Entertainment has released more DVDs than anyone else, a net total of 1,326 titles since the format was launched in March 1997, Tribbey said. Next comes the Warner Group (752 releases), followed by Columbia TriStar/Sony (596).
Tribbey noted that price erosion has yet to hit the DVD market, with new releases retailing for roughly the same as they always have. Only when you look at catalog product "does the price begin to fall away," Tribbey said, with the differential between new release and catalog now at $5.51, up from $1.31 initially.
Tom Adams told studio executives he’s bullish on the packaged media market, despite significant gains in getting households digitized for video-on-demand. He projects there will be 23 million digital households in the United States by 2006, but maintains that VOD trials "are not realizing expected buy rates." Studios currently need buy rates of 200% to make a return on their VOD investments, Adams said.
As transfer costs go down, he said, there will be some cannibalization of video sellthrough and, in particular, rental, but thanks to DVD the erosion won’t be as bad as previously thought. He projects that by 2005, annual consumer spending on VOD will hit $800 million, but points out that’s still less than one-tenth of their expected spending on video rental (VHS and DVD combined).
Based on all these findings, maybe the sky isn’t about to fall —- at least, not yet.