EXCLUSIVE ROUNDTABLE! Growth, Value and Balance Priorities for 200228 Jan, 2002 By: Thomas K. Arnold
At the start of this year, Video Store Magazine invited 12 key industry leaders to a "virtual roundtable" to discuss issues, trends and challenges that lie ahead in 2002. The session, conducted over the Internet and moderated by Thomas K. Arnold, found guarded optimism that the home entertainment pie could grow even bigger in the coming year but will eventually level off as the novelty of DVD starts to wear off. Panelists include Joe Amodei, president of USA Home Entertainment; Crossan "Bo" Andersen, president of the Video Software Dealers Association; Mick Blanken, owner of SuperHitz Video in Delaware, Ohio; Robert Chapek, president of Buena Vista Home Entertainment; Jeff Fink, president of sales and marketing for Artisan Home Entertainment; Craig Kornblau, president of Universal Studios Home Video; Joe Malugen, president, chairman and CEO of Movie Gallery; Joe Pagano, SVP of enterprise entertainment for Best Buy; Steven V. Scavelli, president of Flash Distributors; Kelly Sooter, domestic head of DreamWorks Home Entertainment; Blake Thomas, EVP of worldwide marketing for MGM Home Entertainment; and John Thrasher, VP of video purchasing for Tower Records and Video.
It appears that in 2001, the home entertainment pie got bigger. DVD sales exploded, while VHS didn't decline nearly as much as had been anticipated. How big do you believe the market is now? Do you see even bigger things ahead for 2002 and, if so, how long can this growth spurt last? How big can the pie get?
Amodei: The success the industry enjoyed in 2001 will continue for at least two to three years. The DVD explosion has brought a new life to both sellthrough and rental. It has drawn people back into the stores at both the mom-and-pop level and the mass merchant "entertainment section" level. It has created excitement and whenever there is excitement people want to be involved.
Andersen: Consumer spending on packaged home entertainment reached its high-water mark in 2001 and there are durable indications that consumers' thirst for and satisfaction with home video products are intensifying. DVD sellthrough units more than doubled and DVD rental turns were up 164 percent. For every VHS turn lost to the market, 3.6 DVD turns replaced it. No evidence suggests that consumers are sated on home video. The only near-term limit to the size of the pan for our industry's pie is how much filling we can deliver in truly desirable motion pictures, in depth of copies available for rent and purchase, and in reminders to consumers of the exceptional entertainment value they get at their neighborhood video outlet.
Blanken: Based on everything I have seen or read, it appears VHS activity is down but the increase in DVD activity more than offsets that. I do think 2002 will be bigger, assuming that enough good product is available. However, in 2003 (and certainly in 2004), I think we will see revenue growth begin to level off again. In my opinion, much of the growth is due to a single phenomenon--the novelty of the new medium is resulting in a renewed interest among DVD households in watching and collecting movies. I think the average consumer tends to spend more immediately after the purchase of a new "toy" but, eventually, as the novelty wears off, they return to old habits. This year, I would expect to see combined VHS/DVD sales/rentals increase another 10 percent to 15 percent. In 2003, I think that will slow to about half of that, and by 2004 it will be more level. This is all based on the assumption that DVD remains a sellthrough product.
Chapek: We believe the total market is in excess of $20 billion and will grow to even higher levels over the next year. Given that it is likely that adoption of DVD and library rebuilding within the format will continue, a healthy growth trend can be expected over the next several years.
Fink: I see bigger things ahead in 2002 and beyond. DVD hardware sales continue to grow. It is estimated another 25 million players will be sold in 2002, basically duplicating 2001's growth. Add to this the growth in DVD game players and DVD-ROM PCs and you are looking at a significant growth in consumer collectors and renters of DVD software. At the same time, VHS continues to represent a dominant position in certain product categories--rental, family, fitness--and remains a viable catalog revenue producer. The pie can continue to grow significantly as DVD consumption grows and is added to VHS consumers.
Kornblau: While we anticipate bigger things for 2002, the consumer will ultimately determine the ceiling.
Malugen: Home video continues to be the choice of consumers as the best entertainment for their dollar. The inexpensive rental and the entertaining experience shopping in the video store will continue to satisfy the customer. I expect 3 percent to 4 percent growth in the industry in 2002.
Pagano: I see the entertainment software pie expanding rapidly when one takes into account movies, games and music. There are clear indications that consumers are "nesting" more. Home entertainment is an excellent way for families to enjoy recreational time together. The growth spurt can be attributed to the sales of home theatre components—big-screen TVs and DVD players. And who could leave out gaming platforms like Xbox and PS2?
Scavelli: There has been some nominal cannibalization of VHS by DVD sales and rentals, but the pie has expanded greatly. I believe the pie has grown by as much as 25 percent and could grow as much as another 25 percent in the coming year. I think this is due to the new format, the better quality and lower pricing, as well as the special features. And yet I believe there is a limit to the expanding pie--as consumers get used to their new toys, and also because of the limitation of time, money and space.
Sooter: Although DVD has grown at an incredible rate over the past five years, there is still an appetite for VHS and it's too early to turn away from that market. The overall home video market has never been healthier. Over the next couple of years it is important to keep the DVD market expanding, while not leaving the VHS market too soon. 2002 will be another great year as DVD household penetration continues to grow. Several studios have great family product to bring to market and the continued success of that market segment will benefit the overall industry.
Thomas: DVD is truly a transforming technology in the home entertainment industry, just as the CD was to the audio industry. The DVD format has re-ignited interest in home entertainment by driving format replacement purchases among current collectors and by enticing low to moderate participants into becoming more active consumers. I think this growth in the industry will continue as long as DVD continues to fulfill the promise of bringing the theater experience to the home.
Thrasher: The industry continues to grow and, indeed, the video pie will be greater this year than in any previous year. It will continue for grow for the foreseeable future (five years) at pretty healthy rates if all the prognosticators (research analysts/consultants) are correct. Sellthrough product will continue significant gains of double-digit growth for the next several years while rental revenue will continue to gradually decline. The overall projections I have seen from a variety of sources shows the sellthrough industry averaging better than 10 percent overall growth each year for the next four years. It could approach $18 billion to $20 billion in total spending over this period of time. America is hooked on DVD in a big way.
Are consumers' video habits changing?
Is DVD cannibalizing rental-priced VHS?
What does the future hold for DVD extras?
What is the single biggest challenge facing the video industry this year?
Will 2002 be the year for VOD?
What would be the biggest mistake retailers or studios could make in the coming year?
What advice would you give your colleagues?