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Industry Asking How Much Life Is Left in VHS

30 Dec, 2004 By: Holly J. Wagner

As studios prepare to launch the next-generation DVD format, retailers are still trying to figure out how much life is left in VHS, and when and how to get rid of it.

“Here we are, making the format decision again,” one dealer said. “Now we are bailing on VHS. I don't want to be here for the next format decision.”

VHS should pretty much dry up around 2008, said Tom Adams, principal analyst at Adams Media Research. Adams estimates that VHS rental inventory peaked at 206 million units in 2000 and is now down to 125 million.

“Industrywide, people have got a lot of VHS still in the stores. We think VHS rentals end in 2008,” he said. “That's 125 million units we have to get rid of right quick.”

VHS this year accounted for only 26 percent of rental transactions, according to Video Store Magazine Market Research.

The biggest VHS buyers will have a big say in its demise, said some observers.

“Catalog VHS shutdown will be determined by the big-box retailers. So much of it goes to those guys that if they are not carrying it, there is no reason to make it,” said Steve Scavelli, president of Flash Distributors. “If Hastings and Best Buy and everyone else says they will no longer carry catalog VHS, it will be done.”

Most of the specialty chains have drastically scaled back or altogether dropped VHS product, pushing what's left to overstock dealers, consumers and less traditional markets.

“Over the last couple of years, there has definitely been a decline in dealers using VHS. But in the secondary and tertiary markets, there is still a lot of demand,” said Allan Cooper, a partner in overstock supplier Second Generation Media. “There's still a lot of truck stops that are moving VHS.”

Cooper deals only in new VHS. But rental dealers with a high percentage of VHS inventory are facing declining rental revenue and PVT pricing. Adams assumes that “except for the broker shrinkage factor, the entire reduction of VHS is getting sold off to consumers nationwide.” Most rentailers sell off pre-viewed tapes to customers — 92 percent, according to Video Store Magazine Market Research. But with even DVD prices plummeting, VHS prices are slipping.

“VHS is definitely dying. It's under 10 percent of revenue from sales,”said Ed Geiske, COO of Preplayed.

“The price we pay for VHS has certainly declined in the last few years, but not at the rate one would think,” Second Generation Media's Cooper said. “There is some product that comes out that is dollar store stuff. The better titles on VHS you will pay more money for.”

Few dealers try to sell to liquidators, partly because they pay so little. “Fifty cents [per copy] from salvage companies is a little on the high end,” according to Adrian Hickman, of TLA Video and an iDEA board member. “My personal opinion is that you want to sell it to customers because you want to satisfy a person who may be a repeat customer. You may create a buying customer. It also creates an opportunity to convert a VHS customer to a DVD customer.” Selling prices range from $1.99 to $8, depending on demand for the title, he said.

Other rentailers struggle with pricing. “I am able to sell off to my customers. The price point to get them to move is about $5. But Movie Gallery sells two for $1.99,” said Dan Adler, an 18-year veteran in Boulder, Colo.

“Some people have ‘you can rent pre-viewed VHS for $3.99 or buy it for $2.99,' and they started selling like hotcakes,” Scavelli said.

Meanwhile, the transition raises new and pending stock balancing issues. “If you are an independent retailer, you would be glad to see the end of VHS. What they are trying to do whenever possible is convert people to DVD,” Scavelli said. “They are not replacing any VHS that is damaged or stolen. They are looking at terms. If it has not rented recently, they put it in the PVTs.”

One of the places VHS may stay alive longest is a secondary market like eBay. “We still have a vibrant market for VHS,” said Andrew Lee, eBay's new movie category manager.

“EBay is really [for getting] hard-to-find items. There is still plenty of VHS out there. Eventually, eBay is going to be one of the only places to buy VHS,” said Matt Ledwith, Lee's predecessor. “Our laserdisc business is actually seeing double-digit growth this year. We also sell Betamax.”

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