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Adams: DVD Heading For Another Banner Year

15 Feb, 2003 By: Joan Villa

A new analysis by Adams Media Research describes the pace of DVD growth in 2002 as “torrid,” and predicts sales and rental consumption will remain strong this year.

Video suppliers shipped 702 million DVDs to U.S. retailers in 2002, Adams said, matching the number of VHS tapes shipped in 1998 -- a peak year.

While some of those fourth- quarter shipments will be sent back to manufacturers, overall Adams believes consumers will continue on the consumption path of the past five years, when annual per capita purchases tripled from about five VHS units (the only format then widely available) to 15.5 DVDs in 2002.

“Several factors are keeping DVD supply and demand on similar growth curves: one, unflagging consumer purchase demand; two, household growth that is actually accelerating in the format's sixth year; and three, a rental market that is already taking almost as many discs as it ever took of VHS tapes,” reported analyst Tom Adams.

DVD enjoyed double-digit growth in 2002, according to Adams. Homes with dedicated DVD consoles were up 56 percent, to 38.8 million, DVD unit sales climbed 67 percent, to 491 million, and DVD rental spending escalated 114 percent, to $3.5 billion.

However, competition from sellthrough pushed rentals down 3 percent for the year, and that downward rental trend will slow only slightly this year, to a projected decline of 1.6 percent, he added.

Aggressive pricing from studios on catalog and from retailers on hit titles drove more consumers to purchase, he observed. Adams Media Research calculated that the average street price fell $1.14, to $17.20 per unit.

Since the rental market no longer returns $60 per unit to the studios, Adams said it will cease to be the “ultimate insurance policy,” putting additional pressure on studios to pump out commercially successful films that consumers will want to own.

“Every studio ends up putting out movies that few among America's 106 million households would want to own, even for $15,” Adams said.

“It's the fate of those titles in an ever more hit-driven video market that has studios concerned, even as they rack up per-title revenue figures on the big hits that are 25 percent higher than used to be conceivable,” he concluded.

Typically consumers buy less software as hardware penetration increases, but this year's per capita sales dipped only a half unit from the 16 pieces consumers purchased in 2001, due to the number of new player households entering the market.

“The decline in per-household activity typical of longtime hardware owners is being counterbalanced, at least for now, by the huge number of DVD homes getting started on library building,” Adams said.

“More than one-third of the 38.8 million homes that had a DVD console on their set-top at yearend 2002 bought their first such machine last year.”

In 2003, Adams expects per-capita unit purchases to fall further, to 14.8, while DVD sales overall will climb 39 percent, to 681 million units, and DVD sellthrough spending will reach $11.5 billion, 36 percent more than last year.

Adams expects annual rentals per household to remain relatively flat this year at 33.8 units versus 33.9 in 2002.

However, total DVD rental turns will grow to a projected 1.58 billion this year from 1.09 billion in 2002.

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