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TK's MORNING BUZZ: The DVD Rental Market Is Going to Get Bigger, Faster Than Anyone Imagines

6 Feb, 2001 By: Thomas K. Arnold

DVD sales numbers are a confusing issue. Last week, I briefly touched upon hardware numbers, reporting that the official count -- just shy of 9 million players shipped to retailers during calendar 2000 -- was short of goal, but only because the reporting agency (the Consumer Electronics Association) didn't factor in players from nonreporting manufacturers, mostly from China and Korea.

This morning, let me state that no one will ever be able to more than guess at how many DVD software units are sold through to consumers because so many rental dealers are buying their inventories from mass merchants and consumer electronics chains like Best Buy, which deep-discount discs below -- and, in some cases, well below -- what wholesalers charge.

You see, I happen to believe the DVD rental market is a lot bigger than anyone thinks, and I happen to also believe that it's going to get bigger, faster, than anyone imagines. Already, DVD rentals account for as much as 10% of total rental revenues for the average retailer -- and with so many under-$200 players sold this past holiday season, the buy-versus-rent balance will shift toward the latter.

You're still going to see a sharp and continued uptick in total DVD sales, but you're never again going to see the huge 16-1, software-hardware ratio reported last year by big chains like Best Buy. What you are going to see is a huge -- and I mean HUGE -- upswing in DVD rentals, fueled primarily by the budgetary considerations of the new middle-class DVD buyers who simply can't afford to buy $20 movies to feed their hungry machines.

This new class of DVD owner is going to rent like crazy, to the point where by the end of this year, I wouldn't be surprised if 25% of total rental revenue comes from DVD.

But don't expect any hard rental numbers, either revenue or units, to come from the studios or their DVD advocacy arm, the DVD Entertainment Group. The simple fact is, no one has any idea how many DVDs are winding up in the rental pipeline -- and that makes any attempt at forecasting not just an uphill task, but a downright impossibility.

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

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