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Jury's Still Out on 2007 Spend; Drop Might Only Be Slight

4 Jan, 2008 By: Thomas K. Arnold

Are we up or are we down? As the new year begins, everyone's wondering whether 2007 was as bad as it appeared it would be as recently as November, or whether the plethora of high-profile theatrical releases bunched into December would lift consumer spending on home entertainment into positive territory — or at least soften the blow somewhat.

An exact answer will have to wait until the release of official studio-sanctioned figures by DEG: The Digital Entertainment Group at this week's Consumer Electronics Show in Las Vegas.

But in the meantime, various indicators point to a slide in consumer spending in the 3% to 4% range — not a disaster, by any stretch, but certainly not cause to break out the champagne.

DVD unit sales for 2007 are down 5%, according to Nielsen VideoScan First Alert point-of-sale data. But because this data doesn't include Wal-Mart, which accounts for about 40% of the business, the actual decline could be more — or less.

As for consumer spending, most observers believe the decline in actual consumer spending will be less than the percentage drop in unit sales — a reversal from the past, when mass discounting at retail saw consumer spending decline even as unit sales went up.

Midway through 2007, for example, Nielsen VideoScan data showed unit sales to be down 7.5%, while Home Media Magazine's market research estimated consumer spending for the first six months of this year to be down just 3% from the first half of 2006.

Credit goes to a variety of factors, including the influx of high-priced boxed sets, mostly of complete TV series, which still count as a single unit; the growing tendency among studios to release two or more versions of a hot new theatrical release at the same time, one packed with extras and commanding a higher street price; and a decline in catalog product, which generally tends to sell for a lot less than new releases.

Just before the holidays, Ron Sanders, president of Warner Home Video, projected that consumer spending for 2007 would come in at about $13.6 billion, down about 3% from 2006.

“This is not what we expected coming into this year,” Sanders said, echoing a sentiment expressed by most other studio presidents who had expected the high-definition disc to take off and more than make up for any slowdown in DVD sales.

Due to the format war and consumer confusion, however, that didn't happen, although Sanders is hoping for a turnaround in 2008.

“We started this year with the expectation that DVD sales, industry-wide, would be flat,” he said. “However, it appears we'll be slightly off.” Still, he added, “we see encouraging signs, such as consumers beginning to understand the benefits of high-definition media, as well as brisk sales of high-definition hardware. We hope to see improved growth in this area in the coming year.”

The accompanying charts are preliminary in nature, based only on Nielsen VideoScan First Alert data. Due to the Wal-Mart factor, final results may vary significantly.

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