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DVD Solidifies Sales and Rental Dominance in 2003

15 Jan, 2004 By: Judith M., Melinda S.

It was another banner year for the home video industry in 2003. The increase in DVD penetration and the sustained consumer buy rate more than offset the decline in VHS. Consumers spent $24.7 billion on home video product in 2003, a number buoyed by not only the sales and rental of new product but the growing market for previously viewed fare.

Warner Home Video, which includes New Line, HBO and PBS product, claimed the overall title for market share for the year, thanks to its dominance in the rental market arena.

Buena Vista Home Entertainment claimed five of the top 10 overall sellers in 2003, pushing the sellthrough market share sweeps into a dead heat with Warner for the year, according to Video Store Magazine market research analysis.

DVD sales grew to $11.77 billion, a 35 percent increase from 2002. Of the $14 billion spent buying videocassettes and DVDs, 84 percent was spent on discs. The increasing number of DVD households drove growth in disc sales, and abundant product and high DVD buy rates (the number of DVDs a DVD household buys in a year) added muscle to the overall sales tally.

The Digital Entertainment Group estimates that nearly 57 million U.S. households own a DVD player and that more than 37 percent of those households own two or more units. According to the industry group, there are more than 29,000 DVD titles available to consumers. And DVD consumers have shown a propensity for owning discs. Industry analysts peg the DVD buy rate at between 15 and 17 discs.

In 2003, 28 titles sold more than 5 million units on DVD, and five sold more than 10 million.

With consumers buying more discs, cassette sales were in retreat. Consumers spent $2.24 billion on VHS in 2003, a 34 percent decline from the $3.4 billion spent in 2002. Consumers increasingly migrated away from cassettes as the year progressed. In January 2003, 21 percent of the unit sales were VHS, according to Nielsen VideoScan. By December, VHS accounted for just 12 percent of the units sold in the month.

Warner and Buena Vista claimed an estimated $3 billion each in sellthrough revenue for 2003.

Buena Vista was the undisputed leader in the new-release category. Finding Nemo, the No. 1 theatrical release of the year, was also the top seller for the year. Video Store Magazine estimates that the title sold 25.4 million units in 2003.

New Line Home Entertainment, part of the Warner family, claimed the No. 2 seller spot for the year, with The Lord of the Rings: The Two Towers selling 17.4 million units.

Warner dominated catalog sales. Video Store Magazine estimates 45 percent of all units sold in 2003 were catalog product.

Buena Vista was the overall market leader in VHS sales, which still skew to the family fare. The Disney brand has been able to sustain higher prices on VHS than its competitors. Warner, on the other hand, snagged the highest share of DVD sales.

The appeal of DVD was not limited to the sales counter in 2003, as consumer spending on disc rentals mirrored the double-digit increases seen at the sales counter.

Consumer spending on disc rentals tallied an astounding $4.7 billion last year. Consumers spent nearly 65 percent more on disc rentals last year than they did in 2002.

In February 2003, DVD for the first time took over as the dominant format in the rental channel, passing the 50 percent mark in rental transactions and revenue vs. VHS.

By year's end, DVD rentals accounted for 56.1 percent of all consumer video rental spending, up from 36 percent in 2002 and 14.9 percent in 2001.

Meanwhile, cassette rentals were off nearly 30 percent for the year, with consumers spending $3.7 billion renting cassettes.

Overall rental transactions generated an estimated $8.4 billion in 2003, up nearly 6 percent from the $7.9 billion spent in 2002. While rental transactions were only up a slight 2 percent from the previous year, rental price increases accounted for the majority of the year-over-year gain.

Rentailers big and small raised the price of new-release rentals in 2003. By year's end, the average price of a new-release rental settled around $3.84, up 3.2 percent from $3.72 at the end of 2002.

Adding to rentailers' coffers for the year was the additional revenue garnered from late fees and a hot new revenue source on DVD -- previously viewed title (PVT) sales.

Video Store Magazine market research estimates that rentailers took in an additional $1 billion from late fees, and PVT sales generated an estimated $1.3 billion.

Video Store Magazine market research's comprehensive analysis of the video market in 2003 incorporates data collected by the department; data from VideoScan, the point-of-sale tracking system that is part of the market leading Nielsen EDI research firm; studio input and consumer tracking studies.

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