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HIVE ANALYSIS: DVD Software Shipment Pace Slows

26 Oct, 2001 By: Ralph Tribbey

Third quarter DVD software shipments for the first time in the history of the format were below the previous quarter, according to the home entertainment industry's watchdog for all things DVD, the DVD Entertainment Group (DEG).

The DEG this week reported results for the third quarter and first nine months of the year in the categories of DVD software and DVD player shipments to retail, based on figures compiled by Ernst and Young on its behalf.

Software shipments still beat last year's third quarter handily, with 75.9 million DVD units delivered to retailers during the third quarter of 2001, compared to 42.7 million units during the same period last year. But the third-quarter tally dropped from second-quarter 2001 shipments of 81.7 million software units. DVD software shipments total 226.8 million for the first nine months of this year, up 116% from last year's nine-month total of 104.9 million units.

In commenting on the apparent slowdown in the unit shipment growth rate, DEG spokesperson Amy Jo Donner said, "We believe there has been a conscious move on the part of the studios to load up the fourth quarter this year with their major releases."

In this regard, Donner estimates that the fourth quarter will see 170 million units shipped to retailers, compared to just 77.5 million during the same period last year. This represents a jump of 119.4% from the holiday selling quarter last year, and would bring the final tally for the year to 396.8 million units — more than all of the previous years combined, or 311 million units, according to DEG estimates.

Analyst Bob Alexander of Alexander & Associates says the slowdown in third-quarter software shipments could be a sign of recessionary caution. “There were reports of stores cutting back on orders in August and September” in reaction to the slowdown even before the Sept. 11 terrorist attacks, he says. But he says it “could be a temporary thing,” and that stores may have really stocked up in the second quarter.

While entertainment can weather downturns well, there's “no reason to think that every aspect of home entertainment can continue to sail right through this,” he says. Consumers may defer buying DVD players, and “may not buy entertainment as freely or with as much abandon as they did last year,” he says. It's important that stores not overbuy and risk high returns, he notes. Studios “don't want to be so aggressive that you have to pay for a lot of returns.”

While DVD software sales will undoubtedly be up in the fourth quarter, Alexander says “forcing inventory on stores could actually end up ruining the benefit of the market. It's important to march in step with consumer,” he says.

On the DVD player front, the DEG continues to be more aggressive in its estimates of players delivered to retail than the Consumer Electonics Association (CEA). For the first nine months of the year, DEG reports 9 million units shipped to retailers, while CEA puts the number at 7.55 million. The debate over the differences in totals between the two groups centers on low-priced importers, which are not members of CEA.

According CEA spokesman, Sean Wargo, "At this point we aren't revising any of our figures since all our estimates are based on the best information we have available." He continued by saying, "We have algorithms that we are comfortable with for estimating any non-participant at this point that utilize outside data."

Both DEG and CEA are sticking by their estimates for 2001, with 15 million and 12.5 million DVD players being shipped to retail respectively.

Donner declined to put an estimate forward for 2002. "We will evaluate results from the fourth quarter before making such an estimate."

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