2005 Video Spending Flat5 Jan, 2006 By: Thomas K. Arnold
Consumer spending on home video was relatively flat in 2005, according to numbers compiled by DEG: The Digital Entertainment Group. Combined DVD and VHS purchase and rental spending came in at $24.3 billion, a decrease of less than 1 percent from the $24.5 billion consumers spent in 2004.
DVD sellthrough spending — the holy grail for Hollywood studio executives — rose 5 percent to $16.3 billion, with unit sales up 10 percent. The discrepancy, according to DEG executive director Amy Jo Smith, comes from “price erosion” at retail.
“What we saw in 2005 is consumers continuing to enjoy DVDs, but at retail, prices dropped,” Smith said. She noted that in the fourth quarter, big hits of recent theatricals were selling for as little as $3.44 at some of the country's biggest retail chains, and that the biggest growth in unit sales came from titles listing for more than $25.
“This shows that consumers still place a high value on DVDs,” Smith said, “and that this deep discounting at retail may not be necessary.”
Further breaking down the year-end tally, DEG found DVD rentals rose 14 percent, to $6.5 billion. VHS spending, sellthrough and rental combined, accounted for $1.5 billion, less than half the $3.3 billion videocassette sales and rentals generated in 2004. DEG did not break out VHS sellthrough and rental.
DEG numbers are based on studio and retailer data.
Home Media Research estimates combined DVD and VHS rental spending for the year at $7.58 billion, a decline of just 1.7 percent from 2004.
Thomas Lesinski, president of worldwide home entertainment for Paramount Pictures Home Entertainment, is pleased with the year-end numbers.
“Despite a weaker theatrical slate — the box office was down 7 percent — the fact that the video market was flat indicates that our business is still robust,” he said.
Mike Dunn, president of 20th Century Fox Home Entertainment, agreed. “Rental and VHS are pulling the market down, but DVD sellthrough is up significantly,” he said. “That's the sweet spot.”
In the fourth quarter of 2005, 536.7 million DVDs were shipped to retailers, according to figures compiled by Kaplan, Swicker and Simha for the DEG. That brings the calendar total to more than 1.6 billion units, up 9 percent from 2004.
Since DVD launched in 1997, more than 5.6 billion discs have entered the marketplace.
Steve Beeks, president of Lionsgate Entertainment, said he's glad the media's speculation that consumer spending could be down for the year didn't materialize. But at the same time, he considers the flattening of the business sobering news, particularly since at the beginning of the fourth quarter some executives were still predicting the year would finish a solid 5 percent ahead of last year.
“We all anticipated the maturing of the DVD business, and the corresponding slow-growth business that it would become, but it happened more quickly than we had anticipated, and it happened before the replacement technologies have had a chance to catch hold,” Beeks said.
Like Smith, however, he believes spending would have risen had there not been such drastic price erosion at retail.
“We're at an interesting inflection point in the home entertainment industry,” Beeks said. “This was partly brought on by the dramatic acceptance of DVD technology, but also partly brought on by our own doing.
“By making [DVD] software a low-priced commodity so early in its life cycle, we spurred it to maturity in very short order.”
Hardware numbers compiled by the DEG also reflect the DVD business's maturity. DVD has penetrated more than 80 percent of all U.S. TV households, and 50 percent of DVD owners have more than one player, according to Consumer Electronics Association data cited by the DEG. An estimated 37 million DVD players were sold to U.S. consumers in 2005, with 17 million sold in the fourth quarter alone, the CEA data shows. Since launch, more than 164 million DVD players, including set-top and portable DVD players, home-theater-in-a-box systems, TV/DVD and DVD/VCR combination players, have been sold to consumers.