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Too Much of a Good Thing

17 Apr, 2006 By: Stephanie Prange

The used-DVD business came as a boon to the rental industry just as the mass merchants began gobbling up market share in new DVDs. It was a stream of revenue that helped replace falling profits as the video industry gave way to sellthrough.

Trading also took off, as execs at chains such as Blockbuster realized stores could buy titles from customers and sell them for a tidy profit.

“It's like printing money,” one retailer told me in the early, heady days of the used-DVD business.

Now the tide is turning a bit.

“The problem of course, is with so many DVDs out there the price has been driven down,” one independent wholesaler wrote me. “Also, not every DVD sells well, new or used, much like the game or record business.”

Certainly, the DVD business is showing every sign of maturing. The used DVD glut is just the latest. When it comes right down to it, the consumer only needs one copy of The Godfather Collection or the Star Wars Trilogy.

Once the market for those titles and other catalog hits is saturated, both new and used sales suffer.

Consumers have built out most of their libraries, and demand is more selective. Much of the growth left is in new releases, which come out in only limited amounts each year. A Goldman Sachs report released late last year that studied DVD prospects at the studios said as much.

Retailers in the video software business are entering difficult waters — even the big sellthrough players. Circuit City and Best Buy both reported shortfalls in DVD sales in recent weeks.

Perhaps at no time in the history of this business has it needed a successful new format more. As we embark upon the painfully slow and combative rollout of two high-definition disc formats, the industry really needs a shot in the arm.

One good sign: Consumers are buying those flat-screen, high-def TVs in record numbers. Circuit City this month announced it boosted fourth quarter income a whopping 65% on sales of these new TVs.

Lets hope it's a sign of things to come for the video industry.

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