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<I>VSM</I> Study: Rentailers Want More DVDs, Games

30 Jan, 2003 By: Judith McCourt

DVD will make up an increasingly bigger part of rentailers' inventory mix, but VHS is here to stay -- at least in the short term, according to a study of independent rentailers conducted for Video Store Magazine last month.

While DVD is accounting for an increasing proportion of rentailers' inventories, less than 10 percent of independents said they plan to completely eliminate stocking cassettes for rent before 2005, according to the telephone survey of 200 randomly selected independent video rentailers.

On the heels of a banner year in the home entertainment industry thanks to the unparalleled performance of DVD, independent rentailers are quickly adjusting the composition of their inventory to capitalize on the changing face of home entertainment.

The surge in hardware is leading the charge.

The DVD Entertainment Group reported that more than 25 million DVD players were sold to customers in 2002. DVD set-top households in the United States are pegged at more than 40 million. When DVD-ROM drives and DVD-capable video game machines are included in the tally, the number of DVD playback devices soars to more than 95 million.

Consumer Electronics Association data shows that DVD hardware sales to dealers were brisk for the first two weeks of 2003. Sales of DVD players, which include stand-alone DVD players and DVD/VCR combos, were 83.6 percent ahead of the same period in 2002.

Video rentailers are positioning themselves to respond to increased demand for DVDs.

Discs are almost universally available for rent at independently owned locations, according to the VSM survey. Rentailers with more than 7,500 VHS units in rental inventory almost universally carried DVD for rent, with discs accounting for, on average, 39 percent of their weekly revenue take. DVDs are also a staple with rentailers who carry fewer than 7,500 cassettes in rental inventory, with 96 percent stating they carry DVD for rent.

When it comes to selling discs, independents have chosen to remain in the wings, but plan to take it up a notch. Larger rentailers, those with more than 7,500 cassettes in rental inventory, are more likely than their smaller counterparts to carry DVDs for sale, with 52 percent of that group selling DVDs compared to 28 percent of the smaller inventory group.

In the next 12 months, rentailers plan to shift their purchase patterns and buy more discs and fewer cassettes for rental inventories. Ninety-one percent of larger rentailers said they would favor disc purchases in the next year. Forty percent of these rentailers also plan to step up their DVD sellthrough inventory.

Smaller rentailers will follow suit, with half stating they will decrease their VHS buys in the upcoming year. Eighty-two percent plan to buy more DVDs for their rental inventory, and 27 percent said they have plans to increase the number of discs they carry for sale.

Although rentailers are reducing their cassette buys, they have not yet decided to abandon the format. While just 10 percent of rentailers said they would completely eliminate cassettes from their inventory before 2005, a decisive 70 percent said that right now they have no plans to drop cassettes from their inventory. However, 20 percent of independents are undecided on the course they will take, perhaps indicating they would consider dropping VHS.

The survey findings also indicated that the availability of games for rent at independents was related to inventory size. More than three-quarters (78 percent) of the larger rentailers carry games for rent, while 61 percent of smaller rentailers have games available. Over the next year, 41 percent of larger rentailers and 34 percent of smaller rentailers will increase their game rental inventory.

Independent rentailers largely eschew game sales, regardless of their overall size of inventory. Seventeen percent of the larger rentailers and just 11 percent of smaller retailers stock games for sale.

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