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HIVE EXCLUSIVE RESEARCH: 2001 Turns the Rental Tide -- DVD Takes a Bite Out of VHS

6 Jul, 2001 By: Judith McCourt

Consumers spent more on VHS and DVD rentals in the first six months of this year compared to the same period of 2000, thanks to growth in DVD rental spending. Combined rental spending of $4.3 billion in the firsthalf of 2001 was up 7.4% from the same period in 2000.

Consumers spent $3.83 billion on videocassette rentals — down 1.2% from the $3.87 billion spent in the first half of 2000. A look behindthe numbers shows that at the beginning of April VHS rental revenue was solidly ahead of its 2000 benchmark, with receipts totaling $1.95billion, up 9.4% over the comparable quarter. The second quarter marked the turning of the tide as DVD began to cannibalize VHS rental dollars. In the second quarter, VHS revenues tallied $1.87 billion compared to $2.1 billion last year, a 10.2% decline.

Meanwhile, DVD rental revenue skyrocketed in the first six months of 2001, making up for the VHS deficit. DVD revenues came in at $503.4 million, compared to $157.4 million in the first half of 2001, a 219.8% increase. At the midpoint last year, DVD rentals accounted for about 4% of the weekly rental take. This year, DVD rentals weighin at 11.6% of the weekly take.

The drop in VHS spending is likely to continue, as DVD hardware becomes more prevalent in U.S. households. The Consumer Electronics Association for the first five months of the year places DVD player shipments todealers at almost 3.5 million units, a 70.6% increase compared to the same five-month period last year. Meanwhile, VCR deck shipments to dealers slipped to 6.5 million from 9 million, a 28.5% over the same five-month period.

Video Store Magazine market research estimates that DVD players are inupwards of 15 million households. With the explosion of DVD, it followsthat some consumers would rather rent than buy, repeating the pattern that applied to sellthrough VHS. While early adopters are voracious buyers of the format, as DVD establishes itself in the mainstreammarket, its rental revenues will continue to grow and grab more dollars from the VHS pie.

According to Video Store Magazine’s Consumer Home Entertainment Study,conducted late last year, 64% of households that own a DVD player said they rent DVDs, and 22% of DVD renters said they rent one or more times a week. These renters, however, have not abandoned VHS as arental format. Thirty percent said they also rent a VHS cassette at least once a week.

Universal Studios Home Video, which includes DreamWorks HomeEntertainment, was the top supplier for the first half, a repeat performance from last year. The studio claimed 20% of all rental transactions between January and June 2001, on par with its 19.9% of the market share last year. Based on total turns, Universal andDreamWorks had three releases in the top five spots and four releases among the top 10 rentals. Meet the Parents, a March release, was the top rental for the first six months of 2001, with combined rental and DVDrevenues of $88.8 million since its release.

DreamWorks’ What LiesBeneath took the No. 2 spot, making $77.9 million at the rental counter. Rounding out the top three was Bring It On, also from Universal. The cheerleader comedy made $66.1 million in rental revenue.

Warner Home Video placed second in the sweeps, with 18.2% of the rental transactions, down from 19.6% in the same six-month periodin 2000 when The Green Mile boosted the supplier’s take. Warner scoredtwo placements in the top 10 titles. Miss Congeniality (No. 9), theSandra Bullock hit, streeted in early May and has made $49.8 million so far at the rental counter. Space Cowboys (No. 10) is another high-flying rental, with a take of $49.6 million so far in combined VHS and DVDrental revenues.

Buena Vista Home Entertainment, which includes Disney, Dimension, Hollywood Pictures, Miramax and Touchstone Pictures held on to the No. 3 spot, with 17.7% of the rental turns — up from the 16.3% they had last year. Coyote Ugly (No. 4) was its top performer at the rental counter, making $60.6 million in its first four months of release.

With copy-depth programs entrenched in the video landscape and DVD competitively priced at sellthrough, there were plenty of copies of the big hits in the rental pipeline. That translated to four 2001 releases cracking the top 10 all-time rental debuts chart. Twentieth Century FoxHome Entertainment’s Cast Away grossed $17.92 million in combined DVD and VHS rental revenues in its first week of release to make it the No. 1 rental debut of all time. Tom Hanks starrers own the top two places onthe chart. Warner’s The Green Mile made $17.45 million in its first weekof release last year.

Also finding a place on the top rental debuts of all time chart were 2001’s Meet the Parents (No. 3, $17.33 million), What Lies Beneath (No. 4, $15.04 million) and Crouching Tiger, Hidden Dragon (No. 10, $13.75 million).

Comedies, thanks to help from Meet the Parents and Bring It On, werethe top choice at the rental counter, with 31.9% of rental turns, on par with their performance last year when they owned 32.4% of rental transactions in the first half.

Rounding out the top three genre performers were dramas and action flicks. Dramas finished second, with 27.4% of rental transactions, up from 15.3% in the same period last year. Actioners earned 15.4% of rental turns, compared to 14% last year. The top actioner was Columbia TriStar Home Entertainment’sCharlie’s Angels.

On the sellthrough side, Meet the Parents was the top DVD seller for the first half, while Dinosaur took the top VHS seller spot, accordingthe VideoScan.

(A detailed analysis of first-half sellthroughperformance will appear in an upcoming issue of Video Store Magazine.)

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