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Home Video Revenue Jumps 15 Percent in First Half

24 Jul, 2003 By: Judith M., Melinda S.

Home entertainment turned in a blockbuster performance in the first half of 2003. Consumers spent a whopping $11.26 billion renting and buying new and previously viewed videos in the first six months, a 15.7 percent increase from the comparable period in 2002. The growth in the DVD segment was more than enough to offset the decline in cassette transactions.

Warner Home Video captured the market-share sweeps, claiming 20.8 percent of the dollars consumers spent renting and buying new videos.

DVD Dominates Sales
DVD sales continued to explode, thanks to the increased availability of DVD playback devices in U.S. households. Consumers spent $5.98 billion buying videos, a 23.6 percent increase from the same 26-week period last year.

According to the DVD Entertainment Group, set-top players are in nearly 50 million households. And when other DVD playback devices, such as game consoles and personal computers, are factored into the mix, there are more than 100 million DVD playback devices in U.S. homes.

DVD unit sales shot up 47.7 percent in the first six months of the year, which offset the 39.7 percent decline in cassette sales. Discs accounted for 77 percent of the units purchased by consumers. By comparison, at the midpoint of 2002, 58 percent of the units sold were in the DVD format.

Harry Potter and the Chamber of Secrets was the top seller for the half, with consumers buying 11.79 million units since its April 11 release. Sales remained strong throughout the period as Harry Potter and the Order of the Phoenix, the fifth book in the seven-book series, hit the market late in the second quarter. More than three-quarters of the units sold were in the disc format.

Of the top 50 sellers, only four releases sold more units on cassette than on disc and all of them were aimed at a younger demographic. Leading these was Buena Vista Home Entertainment's direct-to-video 101 Dalmatians II: Patch's London Adventure. Of 2.57 million units sold, 58 percent were on cassette.

More DVD sales in the mix translated to an even bigger jump in sales revenue, thanks to the higher average price of a disc ($17.37) compared to a cassette ($11.36). DVD revenue for the half registered $4.99 billion, which was a 52.1 percent increase from the same period last year.

Cassette sales continued to decline, with revenue dropping to less than $1 billion. Consumers spent $984 million on VHS in the first half, a 36.6 percent decline from the $1.55 billion spent during the same period last year.

Warner product grabbed 22 percent of sellthrough spending for the first half, easily trumping second-place finisher Buena Vista, which pulled in a 17 percent sellthrough share.

Previously Viewed Sales
Consumers not only bought new videos, they also lapped up copies of previously viewed stock. Consumers spent $500 million purchasing previously viewed product, as rentailers sought to sell off inventory when rental demand for titles had dropped.

Releases that had some of the highest initial shipments into the rental stream translated into lots of product in the secondary sales channel. Topping the previously viewed sales list were Universal Studios Home Video's The Bourne Identity ($14.24 million) and Columbia TriStar Home Entertainment's XXX ($14.18 million), which were in the rental pipeline early in the quarter. Bourne landed an initial 1.6 million units in the rental pipeline, while XXX, released Dec. 31, 2002, had 1.77 million units in the rental stream.

Rental Spending Recovers
In the first six months of 2003, consumers spent $4.79 billion on video rentals, up 6.5 percent from the comparable 26-week period in 2002.

Late fees continue to be a sizeable revenue stream for rentailers. Late fees generated $580 million in the first half of 2003, accounting for 12.1 percent of total consumer rental spending.

Rental transactions also posted gains, with rental volume increasing 4.9 percent from the comparable period in 2002.

Lots of units in the rental pipeline translated into big dollars at the rental counter. Of the top 10 rental-revenue generators in the first half, six also had the most units in the rental pipeline.

Consumer spending on DVD rentals in the first six months of the year soared 86.2 percent from last year, to $2.48 billion. In February, disc rentals surged ahead of cassette rentals for the first time, and at mid-year they accounted for 52 percent of year-to-date rental spending.

Cassette rentals continued their descent in the first half, dropping 27.1 percent below comparable 2002 tallies. Consumers spent $2.31 billion on VHS rentals in the first half of the year.

Universal Studios Home Video, which also distributes DreamWorks product, took top honors in rental market share in the first half, after taking the No. 1 spot three out of the first six months of the year. Universal releases accounted for 22.6 percent of first-half rental transactions.

Online Rentals
Online rentals thrived as some consumers found convenience in the subscription model. The channel brought in $100 million in the first half, Video Store Magazine market research estimates. Netflix still dominates the online rental arena. Netflix accounted for an estimated 95 percent of the online rental market in the first half of the year, and close to 2 percent of the overall rental market, Video Store Magazine market research estimates. The e-tailer had a 1.7 percent share of the overall rental market at the end of 2002.

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