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Consumers to DVD: Buy-Buy

10 Oct, 2003 By: Stephanie Prange

Defying conventional wisdom, consumers continue to buy DVDs at astonishingly high rates, even though the format is long past the early-adopter stage.

This trend has changed the old mindset — that consumers would never build vast movie libraries —and has prompted studios to become more aggressive in mining the vaults and bowing special editions.

“DVD is just a really cool product,” said Amy Jo Donner, executive director of the Digital Entertainment Group (DEG). “You don't have to be an early adopter to appreciate what it is.”

Noting that buy rates haven't fallen off nearly as drastically as anticipated, analyst Tom Adams of Adams Media Research in Carmel Valley, Calif., believes the DVD market may ultimately be more like the book or CD market than the VHS market.

Adams originally predicted that DVD's “tie ratio” — the average number of discs the typical DVD household buys in a year — for 2003 would drop a bit, to 14.9 units per household, as DVD hit the mainstream, but he's since raised that projection to about 15.5 (or flat from last year) based on the “phenomenal” growth in the first half.

“We're pushing 50 percent [DVD household penetration], and the tie ratio refuses to go down,” he said.

His surprise is understandable.

When DVD was young and early adopters bought armfuls of discs, industry insiders had one question: Could consumers continue to buy so many DVDs?The industry for a decade had included a sellthrough business — dominated by Disney's animated classics and kids' titles — but it had never before seen a wholly sellthrough-priced market.

Conventional wisdom held consumers wanted to rent certain titles — they didn't want to own every movie they wanted to see — and once the early-adopter phase concluded, the mainstream consumer would be less apt to buy. Now that virtually one out of every two U.S. households has gone DVD, those assumptions appear misguided.

Bob Chapek, president of Buena Vista Home Entertainment and the DEG, said there's been a paradigm shift toward collecting DVDs. “It's not just the zealots buying DVD,” he said. “We're into Des Moines.”

Analyst Adams maintains that one of the main factors driving the shift is the very fact that all movies are available for sale soon after they hit theaters, rather than up to a year later under the rental-then-repricing model of years past. “Making people wait a year to buy it disseminates much of the interest,” he said. “That's the biggest factor. It's the box, too. It's much more collectible-looking than a CD box ever was.” He also said the better picture and extras add to the format's purchase appeal.

“The value-added content is doing a lot to move people to get out and buy,” said Craig Kornblau, president of Universal Studios Home Video, adding that the pricing on hits has steadily declined over the past several years, and that, combined with more creative packaging, creates a high value impression in consumers.

Still, some in the industry doubt the buying binge will continue.

During this summer's Video Software Dealers Association convention, Blockbuster Inc. president Nigel Travis said consumers will reach a point where they can't collect any more DVDs.

“I think people will reach a point where they have too many titles on their shelves,” he said.

Others think the buy rate may still slow in the future as those not as enthusiastic about the format enter the market.

Although she agrees consumers have changed their buying habits, Kelly Sooter, head of domestic video at DreamWorks Home Entertainment, said studio research shows “there may be a softening” of the buy rate as the market begins to include the “renting audience.”

But Adams points out that books are available to “rent” at libraries and pose the same problems in packing the shelves that DVDs do. “That has not caused a major decline in the book ratio,” he said. “There are garage sales, and there are trash cans.”

Will the old rental-priced model ever come back?

“[The consumer buy rate] would have to show signs of collapsing for anyone to move back to rental pricing,” Adams said. And, he contends that if the fourth quarter proves more of a blockbuster for the sellthrough DVD market than he has predicted, the tie ratio “could actually go up.”

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