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UPDATE: Packaged Media Will Grow With Other Movie Delivery, Study Says

17 Aug, 2001 By: Joan Villa

Video and packaged media face a robust future if all U.S. households follow the consumption patterns set by five cities where virtually all delivery options are already available.

Research firm Alexander & Associates studied five markets — Austin, Texas;Sacramento, Calif.; Denver; Boston; and Atlanta — where digital cable has been offered for more than three years, in order to paint a picture of the entire U.S. market five years in the future.

“It’s the best outlook the industry’s had since the mid-1980s,” says Alexander president Robert Alexander. “If you look at household spending numbers, assume no inflation and just add more households, the homevideo market, the cable market and the Internet market get to be verybig.”

The first annual Advanced Media Community Study interviewed 1,500 households, representing a statistical sample of 5 million to 6 million homes, that had access to digital cable; satellite television; high-speed DSL Internet connections; established retailers such as BestBuy, Blockbuster Inc. and Hollywood Entertainment Corp.; and a highpenetration of home computers and DVD players.

The study showed these homes juggled the media diversity by consuming more — as much as 5% of total discretionary income after paying for taxes, rent and food. “It’s classic marketing theory that says when you expand the number of ways someone can consume a product, the wholecategory expands,” Alexander notes.

Average homes in the study spent approximately $55 monthly on their digital cable, just under $30 on VHS and DVD rental and sellthroughpurchases, and a meager $3.20 for pay-per-view. “With every conceivable option, they’re buying everything except pay-per-view,” Alexander notes.

“While average consumers don’t rent or buy as much as they used to, the digital cable households in these communities were a powerful spending force, comprising only 13% of the market but 19% of DVD purchases.”

In fact, “home video would be a $30 billion industry if every home that had satellite or cable behaved like this,” adds research director GregDurkin. That would be 36% more than the $22 billion market at year-end 2000. Taking into consideration the growing DVD market alongside shrinking VHS consumption, the firm’s actual five-yearprojections are a more conservative $25 billion to $28 billion packaged goods market, Durkin says.

So how do consumers in the study find the time to watch so many movies?

“With the expanded number of platforms in these homes, each individual member of the household becomes the decision market,” Alexanderexplains. “Instead of dividing up 24 hours in the day, in these households we’re dividing up 72 or 96 —there are actually more hours in the day and that’s how this is unfolding.”

Alexander believes retailers like Blockbuster and Best Buy have shown consumers they are participating in the digital future by partnering with DirecTV and RadioShack and displaying home theater and cellular products.

Smaller stores could try similar scaled-down tactics, he says.

“A progressive store could demonstrate it knows about the future throughmerchandising and promotion, splurge on a flat-screen display, have DVDs playing, get e-mail addresses of customers and send out notices,” he suggests. “This stuff they could do would let the consumer know they’repart of the future and that’s where the game is from a retailer’s point of view.”

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