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HIVE EXCLUSIVE RESEARCH: Sellthrough May Be Cannibalizing the Rental Market

29 Nov, 2001 By: Judith McCourt

What's the rub? Based on box office, November's home video release slate was packed with some of the most wanted product of the year. And yet rental sagged 6.8% for the four-week period ending Nov. 25 compared to the same period last year.

Perhaps the answer lies in what's happening at the sales counter. Year-to-date sales data provided by VideoScan shows that combined VHS and DVD sales have exploded. Combined sales are up a whopping 24% from the comparable 46-week period in 2000.

These gains are due solely to DVD. VHS sales, as a matter of fact, are down 10%, while DVD sales have soared 130%.So how does this affect the rental equation? It's a classic price and value argument.

A trip to the local video store gets the consumer an overnight VHS or DVD rental for about $3.50. That's fine for catching the flick -- but what about those extras packed on to the DVD. Outtakes, deleted scenes, “making of” documentaries, director's commentaries and more — on Shrek they added up to more than 11 hours. The choices: Keep the kids up all night? Pay the late fee? Rent it twice? Or buy it — particularly when consumers can now choose from a good selection of major-studio DVDs at mass merchants for less than $10?

It appears that more and more DVD player owners are doing just that — buying instead of renting.

Rental spending in November tallied $800.6 million compared to $858.9 million a year ago, a 6.8% decline. A look at the four-year average for the same period shows that spending at the rental counter is off 3.7%. VHS rental spending, on par with last year's levels at the end of the third quarter of 2001, is on the slide. In November VHS rental spending grossed $640.4 million, off 18.2% from last year when consumers spent $782.4 million renting cassettes.

Contributing to this year's decline is the proliferation of sellthrough product. Not only are more and more big movies being released at a sellthrough price on cassette, but practically every movie now is released simultaneously on DVD — and at least for now DVD is all sellthrough.

DVD rentals for November registered $160.2 million for the month, more than twice what they were last year. But the uptick was not enough to offset the loss from VHS. DVD rentals year-to-date are up 150%. Year-to-date VHS rentals are off 2%. Heading into the final stretch of 2001, consumers have spent a record $8.87 billion on video rentals. At the same juncture last year the tally stood at $8.28 billion.

DreamWorks Home Entertainment's Shrek, released on Nov. 2, was the top renter for the month. The friendly green ogre has also been racking up the sales. VideoScan shows it in the lead at the mid-month mark and as the top seller so far for the year in both the DVD and VHS formats.

Columbia TriStar Home Entertainment took top honors in the rental sweepstakes for November, racking up 22% of the rental turns in the period. The supplier grabbed six spots on the top 25 rentals chart and three in the top 10, more than any other supplier did in November. Columbia's top performers were The Animal (No. 4), America's Sweethearts (No. 7) and Final Fantasy: The Spirits Within (No. 9).

Warner Home Video, which includes New Line, HBO and PBS product, fell a notch to the No. 2 spot with 17% of the rental turns for the month. Five Warner titles found a place on the top 25 rentals for the month with Swordfish (No. 3) turning in the best performance.

Comedy reigned king of the genres. MGM Home Entertainment's Legally Blonde, which finished the month as the No. 2 renter, was the top finisher in the category.

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