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DVD Sales Growth Slowed in First Half

21 Jul, 2005 By: Judith McCourt

It had to happen: DVD has hit middle age and sales are starting to sag.

After seven years of frenetic growth of DVD, the first half of 2005 showed definite signs of market maturation, as DVD sales growth fell to single digits.

Consumers spent $11.33 billion in the first half buying and renting videos, with growth virtually flat (0.2 percent) from the $11.31 billion spent in the comparable period in 2004, according to Home Media Research estimates.

Video sales for the first 26 weeks of the year registered $7.32 billion, a 2.2 percent increase from the same period in 2004. DVD sales rang in at slightly more than $7 billion, a 7.3 percent bump from last year.

By comparison, from 2003 to 2004, DVD sales grew a whopping 26 percent. The DVD increase was barely enough to offset the final decline in cassette sales, which fell 59 percent in the first half from the same period in 2004 and added just $227 million to the coffers. More than 95 percent of the sales tally came from DVD revenue, compared with 92 percent in the first half of 2004, signaling the completion of the migration of sales from cassettes to discs.

Rentals continued to falter in the first half of 2005. Video rentals generated $4.02 billion, 3.2 percent less than the $4.16 billion generated in the same period of 2004. DVD rentals made up 84 percent of the total — up from 71 percent at the same juncture last year.

The slowdown wasn't due to a weaker box office punch, but could perhaps be attributed to a lower number of box office titles. The box office power of the theatrical titles hitting the video pipeline in the first half was on a par with those of 2004, up 2 percent from that of titles released during the first half of 2004. However, nine fewer box office titles (with more than $1 million theatrically) hit the video pipeline in the half (102 vs. 111).

The theatrical-to-video release window continued to close during the first half. The average window for the first half dropped from 152 days to 139 days for titles that grossed more than $1 million theatrically and debuted in less than 300 days after their theatrical opening.

While the number of box office titles fell, other releases took up the slack. More than 5,600 new DVD releases bowed in the first half, up 3.2 percent from last year, according to The DVD Release Report. The number of DVD releases may be one of the underlying culprits in slowing sales.

More than two-thirds of all unit sales in the first-half occurred at discount and mass merchant outlets, according to Nielsen VideoScan data.

With almost 50,000 DVD titles released since the inception of the format, retailers must make choices to accommodate catalog, the growing number of releases and the brisk pace at which new releases are coming to market. Shelf-space constraints force retailers to decide what to carry and how long to leave the product on the shelf. It follows that unless a consumer buys a title shortly after its release, he or she may have trouble finding it later.

A second-quarter study conducted by Home Media Research revealed that 60 percent of the mass merchants and discounters said they limit what they carry because of shelf space and that they are cycling inventory more quickly. On average, a new release has just 4.5 weeks in the new-releases section before facing retirement, with 20 percent of retailers pushing it out of the section in two weeks. With titles moving more quickly off the shelf, incremental sales in later weeks are more difficult to realize.

With shorter periods on the shelf and competition for shelf space from lucrative segments such as TV DVD, it's no surprise that unit sales of the top 50 titles for the first half were down 5.5 percent, compared to sales for the comparable group last year, according to Nielsen VideoScan data.

Meanwhile, the trend reversed on the top 10 DVD sellers, which sold 28 percent more units compared to the top 10 for the first part of 2004.

Titles that ranked 26 through 50 on the sellers chart on average sold through 26 percent less units than their 2004 counterparts.

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