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DVD Not Helping Retail or Rental

11 Oct, 2007 By: Erik Gruenwedel

An ongoing weak housing market and warmer than expected temperatures contributed to major retailers posting lower than expected same-store sales in September.

And you can probably add sluggish DVD sales as contributors to Target Corp. and Wal-Mart Stores Inc. revising downward full-year earnings per share (EPS) estimates.

The two retail giants, which reportedly account for more than 50% of all movie DVD purchases, saw same-store sales (open at least 12 months) increase 1.2% and 1.4%, respectively.

Target and Wal-Mart recorded same-stores increases of 6.7% and 1.6%, respectively, last year.

Tom Adams with Adams Media Research in Carmel, Calif., said he believes third quarter video sales will mirror mid-year figures, or a 6% decline from the previous year.

“The softness in video sales this year hasn't helped same-store sales of big box retailers,” Adams said. “They count on videos for that third big day of the week. And video has not been able to help much this year.”

He said the video category often drives foot traffic sales in other departments, a fact he said likely contributed to lower sales. Indeed, Adams believes what looks to be a stronger fourth quarter than last year in video should help sales volume throughout the store.

“The wealth of very strong titles releasing this month through the end of the year should help considerably,” he said.

Where Are the Movie Renters?

With some analysts projecting negative online DVD rental subscribers for Blockbuster Inc. in the third quarter, and Netflix posting its first ever sub decline in the second quarter, at issue is the discretionary spending of movie renters.

“They are going in 14,000 different directions,” Adams said.

He said the years (2001 to 2004) of blaming sellthrough for the decline and stagnation of rental no longer works. Instead, it is a combination of growth in high-def television, subscriptions to cable video, increased usage of digital video recorders (DVR) and consumption of video on demand (VOD).

Studios (with the exception of Warner Bros.) are cautiously approaching cable VOD so as not to negatively impact the DVD golden goose. As a result, Adams said most of VOD business occurs thus far on subscription-based services and not the $4 pay-per-view movie.

“The numbers are just staggering as to how many sessions the cable operators are serving up of on-demand content,” Adams said. “And the studios aren't seeing much benefit from it yet.”

Adams said the DVR and VOD make TV watching a much better user experience than in the early 1980s when the video store became the preferred way to avoid TV commercials and get the programming the consumers wanted when they wanted it.

“Those were the three things video rental had to itself for a long time,” Adamas said. “The networks [and cable operators] have had 25 years to match the freedom of selection of the video store.”

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