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DEG: Consumer Spending on Home Entertainment Slightly Down in 2007

7 Jan, 2008 By: Thomas K. Arnold

LAS VEGAS—It wasn't as bad as many feared. That's the official verdict on 2007, as final figures show consumers spent $23.7 billion renting and buying home entertainment software, 2% less than the previous year.

Figures compiled by DEG: The Digital Entertainment Group on behalf of the studios show consumers spent $16 billion on buying DVDs in 2007, down from $16.6 billion in 2006. Next-generation media sales, both Blu-ray Disc and HD DVD, added another $300 million to the pie, while the rental business was flat at $7.5 billion.

“Consumer appetite for DVD is still very strong,” said DEG executive director Amy Jo Smith, noting that DVD generated more cash in 2007 than music, video games or even box office receipts. “There is a softening in marketplace, but it's not as dramatic as the headlines were letting on. And maintaining a $24 billion a year business — that's huge.”

“Going into it [the fourth quarter], I thought we would be down around 5%, so it beat my expectations,” added David Bishop, worldwide president of Sony Pictures Home Entertainment. “The sheer number and strength of titles we had in the fourth quarter is what saved us.”

Indeed, the fourth quarter saw virtually all the strong summer theatricals arrive on DVD, with studios no longer saving a choice title or two for January. December, in particular, was packed with hits, including Pirates of the Caribbean: At World's End, Harry Potter and the Order of the Phoenix, The Bourne Ultimatum and The Simpsons Movie.

Studios shipped an estimated 1.6 billion software units to retail in 2007, 2% more than in 2006, according to figures compiled for DEG by Swicker & Associates. That brings the total number of units shipped since DVD's 1997 launch to nearly 9 billion discs. In the fourth quarter of 2007 alone, 662 million DVDs shipped to retail.

Nielsen VideoScan numbers, released last week, show a 5% decline in DVD units that actually sold through to consumers in 2007. That decline differs from the drop in consumer spending reported by the DEG for several reasons, including the influx of high-priced boxed sets, mostly of complete TV series, which still count as a single unit; the growing tendency among studios to release two or more versions of a hot new theatrical release at the same time, one packed with extras and commanding a higher street price; and a decline in catalog product, which generally tends to sell for a lot less than new releases.

Still, studio executives see cause for concern, not just with the decline in spending, however slight, but also because of a 12% drop in the average conversion rate, or DVD sales in relation to box office. The fact that the quarter's biggest titles were sequels could be a factor, studio presidents say.

“The size of the DVD business this year had a lot more to do with the size of the films being released in theaters,” said Steve Beeks, president of Lionsgate. “Sequels drove box office, and historically sequels don't convert as well to DVD.”

The two top-selling DVDs, according to Home Media Magazine market research and The Redhill Group, were Paramount/DreamWorks' Transformers and Warner Home Video's Happy Feet, with respective sales of 13.7 million and 13.5 million units.

At 13.2 million units, Walt Disney Studios' Pirates of the Caribbean: At World's End was the top-selling sequel and the No. 3 title overall. Warner's 300 finished fourth with estimated sales of 12.9 million units, followed at No. 5 by Paramount/DreamWorks' Shrek the Third with estimated sales of 12.2 million units.

Disney's Ratatouille, finished sixth for the year with an estimated 12 million units sold, followed at No. 7 by Warner's Harry Potter and the Order of the Phoenix (10.1 million units), Warner's The Departed (No. 8, 8.9 million units), 20th Century Fox's Night at the Museum (No. 9, 8.7 million units) and Universal Studios' The Bourne Ultimatum (No. 10, 7.4 million units).

The DEG also says 33 million DVD players were sold to U.S. consumers in 2007, about the same as last year, with 12 million players selling in the fourth quarter. That puts the total number of DVD players in U.S. homes to 230 million, counting portable units and televisions with built-in DVD players.

The DEG pegs the U.S. household penetration rate at 90%, with 60% of households having more than one DVD player.

Counting game consoles, 4.5 million high-definition media players have been sold to consumers since the first players arrived in 2006. Toshiba shipped its first HD DVD player in April 2006, while the first dedicated Blu-ray players showed up in late June — followed in November by PlayStation 3, with a built-in Blu-ray Disc drive.

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