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Sellthrough Growth Is Still Strong, But Showing Signs of Slowing in Q1

28 Apr, 2005 By: Judith McCourt

The DVD business may be maturing, but consumers are still reaching into their pocketbooks as aggressively as ever. Spending on home video — chiefly DVD — soared 25.7 percent in the first quarter of this year, checking in at a record $4.3 billion.A big driver: Buena Vista Home Entertainment, which released one of its marquee titles — The Incredibles — early in the year, as usual. The animated hit sold an estimated 14 million copies, and with the DVD release of the Disney classic Bambi as well, Buena Vista was able to snag the top spot in the studio market-share race.

First-quarter shipments of DVD software exceeded 400 million units, up 21 percent from shipments in the first quarter of last year (HMR, April 24-30), according to DEG: The Digital Entertainment Group. That's not surprising, given that DVD playback equipment is now in an estimated 73 million U.S. households.

Home Media Research estimates of the units in the retail pipeline, more than 250 million DVDs sold through to consumers in the period, often dubbed the “fifth quarter” as it continues the momentum from the holiday season.

Video revenue at retail is now almost exclusively generated from disc sales. More than 95 percent of all sellthrough revenue came from DVDs in the first 13 weeks of the year, Home Media Research estimates. Cassette sales, meanwhile, generated a paltry $143.2 million for the quarter, down 53 percent from the same quarter in 2004.

The mass merchants and e-tailers tightened their hold on the video sellthrough market in the first quarter, with Nielsen VideoScan data showing about 70 percent of all sales to consumers occurring in the big discount chains and over the Internet. Specialty retail commanded about 20 percent of video retail sales, while the drug and grocery channels accounted for 10 percent.

Despite robust first-quarter sales, the effects of a maturing business will likely be felt soon. DVD player shipments slipped 9.1 percent in 2004 from the previous year, according to the Consumer Electronics Association, while shipments in the first quarter of this year were down a whopping 35 percent from the first quarter of last year. Even factoring in an uptick in TV DVD combo units, sales still were down 27 percent for the quarter.

On the software side, the growth rate is softening. While DVD shipments rose 21 percent in the first quarter of this year, the growth rate in the first quarter of 2004 (from Q1 2003) was 43.4 percent.

To maintain sales growth, overall product strength and niche markets will become increasingly important.

The TV DVD sector continues to be a bright spot, with higher average price points ($46.10 for a multidisc set) and a growing fan base that should see consumer sales near the $3 billion mark this year. Other growth areas include children's and family programming, which are still migrating from VHS to DVD.

Buoyed by strong sales of its two animated features (Bambi sold an estimated 4.7 million units), Buena Vista grabbed 20.4 percent of consumer video sales in the first quarter, with an estimated take of $881.7 million, according to Home Media Research.

Warner Home Video, which includes New Line Home Entertainment and HBO Home Video, finished at No. 2 with an estimated 19.5 percent of video sales, generated from a mix of new theatrical releases, TV DVD sets and catalog product. New Line's The Notebook was the top performer at retail, with estimated sales of 4.2 million units.

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