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2005 In Review Part 7: JULY 2005

1 Jan, 2006 By: Thomas K. Arnold

The battle lines were drawn in the impending high-definition optical-disc format war, with Blu-ray Disc and HD DVD dividing Hollywood studios and the consumer.

Best Buy says it will step up its pursuit of exclusive product and window deals to distinguish itself from its competitors, citing a retail landscape where every big chain has the same hot new DVD releases priced below $15 their first week out. Best Buy's Fourth of July circular touts the exclusive availability of a single-disc compilation of “Buffy the Vampire Slayer” episodes.

In the wake of a DreamWorks SKG shareholder suit about overly enthusiastic sales projections for Shrek 2 comes word that Pixar Animation Studios has lowered its earnings estimates for the second quarter after an internal review found home video sales of The Incredibles didn't meet projections, either.

Rival next-gen formats HD DVD and Blu-ray Disc each release surveys showing consumers prefer their concept of a next-generation, high-definition optical disc. Blu-ray's survey found 58 percent of respondents preferred Blu-ray and only 16 percent liked HD DVD; Warner Home Video's survey, on behalf of HD DVD, found 51 percent of respondents preferred HD DVD and 24 percent liked Blu-ray. The dueling surveys come right before 20th Century Fox Home Entertainment, the lone holdout among the six major studios, throws its support behind Blu-ray Disc, creating an even divide.

Studio executives say the honeymoon's over. After years of double-digit gains, home video sales growth has slowed significantly. Spending actually dipped in April and May, and Buena Vista Home Entertainment president Bob Chapek concedes “the business is softening at rates we expected or even more.” Fingers point at two developments: early DVD adopters have plenty of discs in their libraries and aren't buying as aggressively as they once did, and new DVD converts aren't as rabid about buying DVDs as earlier waves.

Movie Gallery reports same-store revenue dropped 5.5 percent in the second quarter, while rentals slipped 8.4 percent. The shortfall prompts executives to scale back new-store openings for the year to 300 from 400.

The Video Software Dealers Assocition returns to Las Vegas for Home Entertainment 2005 and attendees are left with sobering, but not altogether unexpected, news: The DVD business is maturing, growth has slowed to the single digits, but there's no cause for alarm — at least, not yet. Twentieth Century Fox's Simon Swart sounds an upbeat note, predicting a healthy 8 percent uptick in DVD sales for the year and maintaining, “I don't think the sky is falling, and I don't think we are in trouble.”

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