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DVD Rises, But Third-Quarter Rentals Fall

11 Oct, 2002 By: Melinda Saccone

The disc keeps spinning.

DVD rentals continue to post triple-digit gains in the third quarter of the year, pushing tallies past the $2 billion mark.

Consumers spent $882.9 million on disc rentals between July and September, up 112.9 percent from the $414.7 million spent during the comparable period in 2001. But while DVD continues to gain ground in the rental market, the rate at which it is growing is beginning to slow as the most active renters have already adopted the format.

At the end of the first quarter, DVD rentals accounted for 23.8 percent of the rental tally. For the second quarter, DVD rentals took 36.8 percent of the pie, jumping 13 percentage points. In the third quarter, DVD spending made up 40.5 percent of the pie, a 3.7 percentage-point increase. Even though growth in DVD rentals has slowed, the sector is likely poised for another jump as consumers buy DVD players for the holidays.

Rentailers are adjusting their product mix in favor of DVD. According to an independent survey conducted for Video Store Magazine market research in September of this year, nearly 35 percent of all new purchases by retailers are in the disc format.

So far this year, consumers have doled out $2.2 billion on DVD rentals, up 134.9 percent from the comparable period in 2001. At the end of September, cumulative DVD rentals accounted for one-third of total annual rentals, compared to 23 percent at the end of 2001.

Another factor in the rental equation is the popularity of DVD at the sales counter. While consumer spending on DVD rentals should continue to grow through the end of the year, the rate at which disc rentals are expanding may be impacted by the explosive growth seen in DVD sales in the past year as some consumers choose to own rather than rent. According to Nielsen VideoScan, at the end of the first half of this year, DVD sales were up by more than 70 percent from the comparable period in 2001. A strong slate of fourth-quarter hits may boost that even further.

DVD rentals and sales also are beginning to cannibalize VHS rentals as more and more consumers opt for disc.

VHS rentals as a percentage of total rentals are in retreat. At the end of the quarter ended Sept. 30, VHS rentals accounted for 59.5 percent of total rental spending. By comparison, at the end of January, VHS rentals accounted for more than three-fourths of monthly transactions.

Between July and September, consumers spent $1.3 billion renting cassettes, down 45.5 percent from the $2.38 billion spent in the third quarter of 2001.

VHS' precipitous fall caused aggregate third-quarter rental spending to plunge for the three months ended Sept. 30, pushing year-to-date spending further in the red. Between July and September, consumers spent $2.18 billion at the rental counter, down 22 percent from the $2.8 billion consumers doled out during the comparable period in 2001. For all three months in the third quarter, U.S. consumer rental spending posted double-digit percentage losses over the comparable period in 2001.

Rental spending began its sharp fall in July. At the midyear point of 2002, consumer rental spending was down just 1 percent from the previous year. But by the end of the third quarter, rental spending fell to $6.68 billion, a 9 percent decline from the $7.3 billion spent in the first nine months of 2001.

Video Store Magazine market research estimates total combined rental spending will fall to about $9.5 billion for the year, with DVD rentals edging toward the $4 billion mark, ending the year below the $10.03 billion spent in 2001.

As for the studios, Warner Home Video dominated the rental counter in the third quarter. The studio, which also distributes New Line and HBO product, grabbed nearly one-fourth of all rental transactions (24.5 percent) during the 12-week period to take the No. 1 market share slot.

Three of the top five renting releases for the quarter were under the Warner label. Leading for the studio was New Line Home Entertainment's The Lord of the Rings: The Fellowship of the Ring, which was the No. 2 rental overall for the quarter. Other top titles were Warner's Collateral Damage (No. 4) and New Line's John Q. (No. 5).

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