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Growth, Value and Balance Priorities for 2002 -- Part 2

28 Jan, 2002 By: Thomas K. Arnold

Are we seeing a change in consumer habits when it comes to home entertainment? Are consumers more likely to buy and collect movies now that almost everything is coming out on DVD at a sellthrough price, instead of being released first to the rental channel?

Amodei: Consumers are now being offered something that is cool, and they dig this. It's not only the extra features, though studios will have to continue to be creative in this area, but it's the sound and the picture. The average customer will now be more inclined to buy their favorite classic movie because it comes in the best way possible and it even has some extra goodies as well. As long as studios release their catalogs with care and not just shove them into the consumers' hands with no effort or creativity at all this trend we witnessed in 2001 will continue. On the rental side there will always be room for films with no cast or box office clout that are just not collectible. These films will become our rental business. There are also a number of box office champs that just do not lend themselves to being viewed repeatedly. These will fit into that category as well.

Andersen: Sellthrough pricing undoubtedly boosted the remarkably successful rollout of the DVD format. Buyers of DVD players appear to be assembling libraries of DVDs more rapidly than VHS copies, more even than in the early days of VHS. But little can be said with certainty about how or whether the next purchasers of DVD players will adjust their renting and buying habits. Certainly, some demographic groups prefer renting to buying for the majority of releases. Largely unknown is the potential library depth of sellthrough consumers.

Blanken: I think we are seeing an increase in both rental and purchase activity among new DVD households. But I think this is temporary. Consumers are more likely to buy their "favorites," but they will continue to rent, as well. One thing to consider is that many of those people were buying VHS as previously viewed. Many DVD households are purchasing previously viewed DVDs as well, but the fact that everything is available at sellthrough, day-and-date certainly stimulates "new item" sales as well.

Chapek: We believe there can be a healthy business in both the sellthrough and rental channels in the future. Ultimately, not every consumer will want to own every movie, and therefore rental as a consumer activity should continue as long as sellthrough products are premium priced to rental products.

Fink: Day-and-date sellthrough pricing used to be an event; now, it's the norm with DVD and a segment of the consumer population is responding to that. I think it's a misnomer to categorize DVD as released first to sellthrough—it is actually being released to both channels (rental and sellthrough) simultaneously. This is a strategy that occurred infrequently in the pre-DVD days of this business when releases were designated as "rental-first" and consumers did not have the option to purchase. Consumers still like to rent, but there is a growing segment of the populace purchasing DVD due to the nature of the format and the day-and-date pricing strategy.

Malugen: It is unclear if consumer habits are changing. We still are in the early adoption stage of DVD, and it is hard to predict if these buyers' habits will be reflected by later adopters.

Pagano: No question that given the opportunity to collect consumers have voted with their wallets that they prefer owning movies first. I believe that one of the reasons for DVD's huge success is that consumers had the choice of collecting or renting.

Scavelli: I don't believe we are seeing a change in consumer habits. I believe we are seeing the consumer take advantage of a new and better technology, at an affordable price.

Sooter: There is a very healthy appetite to own DVDs. Because DVDs offer a superb picture and the best-quality bonus materials, they are very collectible items. For years, we have known that consumers, especially the family market, like to own movies and maintain a video library. I think DVD will keep that collector's mentality alive across a broad range of demographics.

Thomas: I do think we are seeing a change in consumer habits, but there is no evidence that this change is related to pricing. Consumers are intrigued by the exciting new features the DVD format offers. With digital sound, crisp clear picture and added content, watching a movie at home is now a whole new experience. The idea of collecting and building a library of film titles is once again very appealing.

Thrasher: I think consumer buying habits are always changing with combinations of economic variables (recessions, inflation, defalation, growth, etc.) and product innovations in the market place. We are fortunate as an industry to have products to sell that, for the most part, are priced where the average person believes they receive tremendous value.This goes for both the rental and the sellthrough experience. The cost of goods is low enough now that many people do forego the rental drill and simply purchase the item. It has helped immeasurably to have value-added features that enhance the viewing experience.

Read more:

How big is the video market and are bigger things ahead in 2002?

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?

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