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Will 2004 Be VHS' Swan Song?

21 Dec, 2003 By: Kurt Indvik

For as long as DVD has been on its meteoric rise, industry executives from studios and retail have been cautioning colleagues not to prematurely abandon the VHS business. Of course consumer demand, brought on by a higher quality and better value product, and retailer buy rates, fueled by a more attractive ROI, spurred DVD to become the most successful and fastest growing consumer electronics technology ever. Still, until this year, VHS commanded the majority of rental revenue while DVD took over the sellthrough business.

Earlier this year DVD overtook VHS in the rental business as well, and its been gaining ground ever more quickly in that space, while now completely dominating the sellthrough business. And while I have been a strong proponent of encouraging both retailers and studios to continue to maximize the return on VHS, it's clear that this format is on its last legs and is losing support from both retail and supplier alike. That is made very evident when Disney, long the bastion of children's programming, a genre which was tardy coming to the DVD party for obvious reasons, sees its titles soar on DVD and trumpets that success.

Indeed, it's fair to say that 2004 may be VHS' swan song.

Our most recent reader poll on this web site shows the level to which VHS has fallen on the retail front. When asked what percentage of you product mix VHS would be next year more than 57 percent of the responding retailers said less than 10 percent. Only 10 percent of respondents said their mix would be 50 percent or more.

This week's edition of Video Store Magazine talks about the imminent demise of VHS. While major chains such as Best Buy and Circuit City eschew the format, smaller chains like Tom Warren's 10-store Video Hut in North Carolina are also watching VHS dwindle before their eyes. Warren, also the chairman of the board of directors at the VSDA, says he expects VHS to account for about 18 percent of his rental business and less than 5 percent of his sales next year.

A little more than a year ago VHS accounted for about 66 percent of the total rental business, according to Video Store Magazine. That share has dropped to about 36 percent. Next time this year we could be looking at a number that threatens to be in the single digits.

Needless to say, there is still money to be made renting VHS and likely there will be niche markets around the country that, for demographic reasons, still may do alright with the format for several years to come. Meanwhile, however, I'll be interested to see how the industry goes about disposing of this remaining VHS inventory in the coming months.



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