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First-Half DVD Take Falls

30 Jun, 2006 By: Thomas K. Arnold

Continuing a slow but steady decline that began last year, consumer home video spending slipped 3.7% in the first six months of this year, to $10.9 billion, according to preliminary estimates from Home Media Retailing's market research department.

Video purchases are down 3.6%, to $7 billion, while rentals fell 3.9% to $3.9 billion.

Studio executives aren't surprised, saying that the now-mature DVD business has become increasingly product-driven. Upwards of 80% of U.S. households now have at least one DVD player, and the last wave of consumers to ditch the VCR isn't buying nearly as rabidly as the early adopters.

This pattern is reflected in the overall sales of new releases being down about 7% from the first half of 2005, as last year's weaker theatrical slate hits video.

“We predicted the business would be flat this year, and that's what's happening,” said Sony Pictures Home Entertainment president Benjamin Feingold.

Consumer spending tends to mirror the strength of the product coming into the market. A weak slate of titles entering the market in January and February — the collective box office strength of DVD releases in those months was down 3.2% from DVDs that had come out in January and February of 2005 — led to a 13.1% decrease in consumer video spending in those months, Home Media Research shows.

Things picked up in March and April, with such blockbusters as Harry Potter and the Goblet of Fire, Chicken Little, King Kong and The Chronicles of Narnia: The Lion, the Witch and the Wardrobe driving consumers back to the DVD counter.

The combined box office strength of March and April releases was $1.72 billion, 10.7% more than the total for March and April 2005 DVD releases. The business briefly rebounded and, for a few weeks in April, was tracking in positive territory compared to the previous year.

But then came May and June, with a dismal slate of new releases. The collective box office strength of DVDs that came to market in those two months was just $1.3 billion, off 8.7% from the May and June 2005 slate.

Mike Dunn, president of 20th Century Fox Home Entertainment, puts things in perspective.

“In the first half of this year, we've had seven titles that grossed more than $100 million at the box office come to video, and all seven titles fell prior to Easter,” Dunn said. “Last year, we had 12.

“So what you saw in the first part of the year was pretty significant growth — nearly 20% growth in sellthrough to Easter — and then between Easter and the end of June we've given it all back.

“The market has been very, very soft.”

The good news for home entertainment is that if consumer video spending is driven by box office hits coming to DVD, the rest of the year looks fairly strong, given the theatrical rebound so far this year. Through last weekend theatrical receipts were up 4.5% from the same period last year, and ticket sales have been up from the previous year for 13 out of the last 14 weekends.

“Product cycles are inevitable,” said Steven Einhorn, president of New Line Home Entertainment. “Given that the DVD business is in its mature stage and considering the size of the marketplace and the competition, I think we are still doing a good job of satisfying the needs of consumers.”

“DVD continues to play a significant role in driving profits for the entertainment industry, and we expect that to continue for many years to come,” added Steve Beeks, president of Lionsgate.

In market share, Warner Home Video, as it has for the past several years, leads the pack with an estimated 20.6% share of all video sales. Buena Vista Home Entertainment finished its traditional second, with 16.6%, followed in third place by 20th Century Fox Home Entertainment, with 12.8% — a number that likely will go up as the year progresses now that the studio has taken over distribution of MGM titles from Sony Pictures Home Entertainment.

Universal Studios Home Entertainment, no longer distributing DreamWorks, finished the first half of the year with an estimated market share of 11.6%. Sony had a first-half market share of 11.2%, followed by Paramount Pictures Home Entertainment with 9.5%. Lionsgate, buoyed by such top sellers as Saw II and Crash, had just under 5%.

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