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First-Half Revenue Sets Record, But Rental Drops Sharply

14 Jul, 2004 By: Judith M., Melinda S.

The DVD engine, fueled by 70 percent playback penetration and the unabated consumer interest in owning discs, pulled home entertainment spending to a record first-half finish.

Consumers spent $11.31 billion renting and buying videos in the first 26 weeks of 2004, with 85 percent of that revenue generated by discs.

While sellthrough spending grew, rental spending took a sharp drop, dipping to its lowest level since 1996.

The Kings battled it out, with New Line Home Entertainment's The Lord of the Rings: The Return of the King helping Warner Home Video snatch an overall sellthrough market share win from Buena Vista Home Entertainment. Disney's direct-to-video The Lion King 1-1/2 dominated the sales counter until the release of the third installment of the “Rings” trilogy May 25. Return of the King added an estimated $252 million to Warner coffers in the first-half while Lion King 1-1/2 pushed $168 million into the Disney purse.

At the halfway point, Warner's overall market share stands at 19.4 percent while Buena Vista is clocking in with 18.4 percent of the take.

Buying Patterns Hold
The big action in the first half of 2004 was at the sales counter. Consumers spent $7.16 billion buying videos, a 20 percent gain from first-half 2003. DVD sales were up 32 percent, more than offsetting the 44 percent drop in cassette sales. A record $6.61 billion, or 92 percent, of first-half sellthrough dollars came from disc purchases. That compares to 84 percent at mid-point 2003 and 68 percent at mid-point 2002. Strong second quarter product and solid legs on earlier releases were market drivers, but consumers' growing interest in buying DVDs also fueled sellthrough growth.

Video Store Magazine's 2004 Consumer Home Entertainment Study, conducted in the first quarter of the year, showed that the average DVD household purchased 19.5 discs in the prior 12 months, with the most ardent buyers scooping up a record 59 discs per year. Industry fears about late DVD adopters buying less have evaporated. According to the most recent data, the latest wave of adopters are rabid buyers, too. The average DVD collection size now totals more than 43 discs.

VHS sales were in freefall, as the last bastions of support, the kidvid and fitness markets, became DVD dominated. Consumer spending on cassettes fell to $547.78 million, down 44 percent from the $983.89 million spent in the comparable 26-week period of 2003 and off 65 percent from the $1.55 billion spent in the first six months of 2002.

It was a hard-fought battle at the sales counter, but Warner Home Video eked out a market share win in the sales derby with the supplier taking 22 percent, or $1.57 billion, of the $7.16 billion spent. Buena Vista Home Entertainment finished a strong second, with a 20.2 percent ($1.45 billion) market share.

Rental Spending Dips
Consumer spending at the rental counter in the first half of the year has reached its lowest level since 1996, as heightened competition from new and used disc sales mired consumer demand.

In the first half of 2004, consumer rental spending was off 13.2 percent from the comparable 26-week period last year. Consumer rental spending fell to $4.16 billion in the first six months of 2004, hitting its lowest level since the birth of DVD.

Release quality was not the culprit for the rental drop. The box office strength of new releases in the first half of the year was $4.1 billion, up 2.3 percent from the comparable release slate in 2003. Despite a stronger second quarter release slate – $2.29 billion compared to $1.88 billion for the comparable three-month period last year – overall rental spending failed to rally.

Consumers who rent are favoring discs. DVD rentals soared to $2.98 billion in the first-half of the year, but it wasn't enough to offset the precipitous decline in cassette rentals. At the end of the first half, disc rentals generated 72 percent of total rental dollars, up from 52 percent during the comparable six-month period in 2003. By comparison, VHS rentals continued to spiral downward, posting a 48.6 percent decline from comparable spending on the format last year. Cassette rentals generated just $1.18 billion in the first six months of the year.

Columbia TriStar Home Entertainment took top billing in the rental market share sweepstakes for the first half of the year. The studio's releases generated $777 million at the rental counter in the first six months of 2004, accounting for 18.7 percent of all rental transactions.

Buena Vista Home Entertainment moved into the No. 2 spot, with a 15.2 percent market share. Buena Vista releases generated $631.9 million in rental revenue in the first six months of the year.

Trailing by a narrow margin was Warner Home Video, which also distributes New Line and HBO product. Collectively the studio grabbed a 14.9 percent market share, translating into $621.2 million, in rental spending.

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