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DVD Growth Forecast Upped

16 Sep, 2002 By: Joan Villa

By JOAN VILLAThe number of U.S. households with a DVD player could jump 25 percent to nearly 50 million after the fourth quarter, according to a revised forecast by research firm Alexander & Associates.

The forecast was significantly restated from three months ago, when Alexander was projecting slightly more than 43 million DVD-capable households by January, based on sales and consumer behavior over the first half of the year. But a summer of strong DVD console growth and a new survey showing high consumer intent to purchase a player resulted in the upward revision, president Robert Alexander said.

“We're at 41 percent of households now, and in June we were at 35 percent penetration, and we're expecting close to 50 percent penetration by the end of the year,” Alexander explained. “It's very likely to shift the VHS-DVD dynamic.”

DVD-capable households have grown significantly over the summer months. On June 25, when Alexander compiled the firm's first forecast for year-end growth, there were 37 million DVD households, growing to 41 million on July 30 and 43.7 million at the end of August, he said.

That kind of growth over the summer months is unusual, but may be explained by the highly visible campaigns promoting DVD software launched by Blockbuster Video, Hollywood Video and even online rental retailer NetFlix.

“If there's been any pressure to accelerate the adoption of DVD it's been from the retail community,” Alexander theorized, since consumers now see the full array of DVD titles available. Blockbuster billboard and television advertising have touted DVD availability and a summertime “entertainment pass,” he noted, while NetFlix has been visibly promoting its no-late-fee monthly subscription model. In addition, studio advertising has consistently sent the message that product is available to rent or own on DVD, he added.

On the studio side, marketing promotions for new releases and special-edition DVDs that tie-in to clothing, minivans and SUVs, fast food and airline vacations are creating valuable awareness for the format, notes Columbia TriStar marketing VP Tracey Garvin.

“The average user is purchasing more DVD than VHS,” she said. “Our industry has done a really good job in educating Wall Street and a lot of other industries about the benefits of DVD.”

That awareness is translating into a higher intent-to-purchase a DVD player this fall among non-DVD-capable households — or those not owning any DVD device such as a console, computer or PlayStation 2 — than a year ago, Alexander said. Among the 65 million households lacking DVD, 27 percent say they are “very” or “somewhat” likely to purchase a player this year. Even compensating for the fact that not all consumers will follow through, Alexander estimates that new DVD player purchases between August and the end of December will reach about 9 million to 10 million units — a jump of nearly 25 percent from the 40 million installed units in early August.

This jump in household penetration could have far-reaching implications for the delicate balance between VHS and DVD, he says.

“Right now there's been concern over the level of sales into households with only VHS and this is likely to have a significant impact on that group which now is still 50 percent bigger than the DVD group,” he noted.

But with a near equal penetration of the two formats forecast for early 2003, it's unclear how that shift will play out in the marketplace in terms of sales and rentals of VHS versus DVD, he added.

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