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TK's MORNING BUZZ: Are the Big Electronics Chains Giving Up on VHS Too Soon?

14 Nov, 2001 By: Thomas K. Arnold

Are the big electronics chains giving up on VHS too soon? Studio executiveswon't speak publicly, in part because they don't want people to think they'reanything but enthusiastic about DVD and also because they don't want to offend some of their biggest customers.

But privately, some high-ranking executives are wondering if the electronicschains, which pride themselves on pushing the envelope, are pushing too hard.

"VHS still has a lot of life left in it, and now in the fourth quarter the VCR penetration rate is still four times the DVD penetration rate," oneexecutive said. "And yet we see the electronics chains devoting 75% or more of their movie inventory to DVD. It doesn't make any sense."

I can sympathize with both sides. Electronics chains, by their very nature, cater to the early adopter, and the early adopter has wholeheartedly embraced DVD -- with a much higher buy rate than his VHS predecessor. Electronics chains consider it their duty to keep their edge, and if DVD is encouraging people to collect movies -- which it appears to be doing -- then so much the better.

And yet limiting VHS to a dusty side shelf may not be in anyone's best interest. While consumers this year bought more than 12 million DVD players, they also bought 24 million VCRs -- hardly an indicator that VHS is dead.

If you look at the press release DreamWorks sent out recently about initialShrek sales, you'll see that while consumers bought 2.5 million DVDs, theyalso bought nearly 4.5 million cassettes.

Those are hardly numbers that would seem to encourage the 80-20 split, in DVD's favor, that we're seeing at large electronics chains like Best Buy.

Who's right and who's wrong? It's hard to say. The last time I was in a Best Buy store, I counted nine rows of DVDs and only one of cassettes. If this ratio were more even, would Best Buy sell more movies or fewer movies?

It's a judgment call, and ultimately the jury -- the consumer -- will let us know. I have a feeling when the fourth quarter is over, a lot of retailers are going to sit back, compare numbers and analyze the data. And then, based on what they find, there could be some serious inventory shuffling.

Best Buy might go back to a more equitable DVD-VHS split. But then again, Wal-Mart and Target, which at this point carry more cassettes than discs, might just as easily go the other way.

At this point, all we can do is wait and see.

Comments? Contact TK directly at:TKArnold@aol.com

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