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Alexander Research Pegs Business at $28.5B

20 Jan, 2003 By: Joan Villa

Research firm Alexander & Associates has pegged 2002 video industry spending at the highest number yet for combined rental and sellthrough: $28.5 billion.

Rental finished the year at $13.1 billion, 0.8 percent higher than 2002's $12.975 billion, the company reported. The rental numbers were compiled from weekly consumer surveys covering a broader base of video outlets, including grocery and drug stores -- what Alexander president Bob Alexander estimates is 40 percent more than reported under VidTrac's point-of-sale system. Last week, VidTrac placed the 2002 rental business at $8.2 billion, down 3 percent from 2001. Video Store Magazine market research has estimated the rental market at $8.9 billion in 2002, down 11.5 percent from the $10.03 billion spent in 2001.

“In dollars, we're up, but on units rented we're down 4 percent, and that's because there were price increases in 2002,” he explained, especially for DVD, which comprised a bigger portion of the rental pie than ever before and commanded higher prices than VHS.

DVD rentals nearly doubled in 2002, to $4.286 billion, from 2001's $2.156 billion, while VHS rentals fell 18.7 percent from 2001 to $8.79 billion last year.

Sellthrough climbed 31 percent, to hit $15.4 billion, in 2002, including the used VHS and DVD market, and sales at Wal-Mart, military bases, the Internet and several other locations not tracked by VideoScan, Alexander said. (For Nielsen VideoScan/Video Store Magazine sellthrough numbers, see page 23.) Again, sales of DVD more than doubled, to $8.4 billion, from $4.15 billion in 2001, while VHS sales dipped only slightly -- 8 percent -- to just less than $7 billion.

However, the year could have finished even higher if the fourth quarter had followed through on more bullish returns in the first nine months, Alexander said.

In terms of units, full-year DVD rentals were up 88 percent, but in the fourth quarter they rose just 48 percent, he said. DVD purchases were up 103 percent in the fourth quarter, but 124 percent for the full year. DVD “showed a big uptick in volume,” which was offset by a price drop to an average $17.08 per disc from last year's average of $18.80, he continued.

“The fourth quarter is where the momentum dropped off,” he noted. On both DVD and VHS, the fourth quarter saw a drop relative to the trend line, he added.

VHS dollar sales were also weaker than anticipated, declining by 15 percent in the fourth quarter, although purchases were only down 3 percent for the whole year.

VHS rentals dropped to the lowest point ever, one-half tape per VCR household per week, exactly the same as the number of discs rented by the average DVD household. Active VCR households purchased an average 1.81 tapes -- a number that hasn't changed significantly since 1996's high of 1.97 tapes purchased per week by the active household (the historic high was 2.09 tapes purchased in 1987). DVD's purchase rate dropped slightly, to 1.9 units per week per active DVD household, from two tapes in both 2000 and 2001, reflecting a typical dip in sales when players are no longer seen as a new toy in the home, Alexander said.

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