HIVE EXCLUSIVE: Industry Hopes DVD Will Spawn Sellthrough Market in Japan

5 Apr, 2001 By: Thomas K. Arnold

American studio executives are hoping the wave of worldwide interest in DVD will help them achieve a long-harbored objective: to open a sellthrough market in Japan.

"Creating a sellthrough market, along with maintaining a healthy rentalmarket, is a huge priority for us in Japan," says Eric Doctorow, president ofworldwide home video for Paramount Pictures. "And that may only happen with the introduction of DVD."

Historically, Japan has been a voracious video consumer. Analyst Tom Adams estimates Japan last year generated about $800 million in video revenue for the studios, right behind the United Kingdom and, of course, the United States.

Japan used to be No. 2, but the sellthrough explosion that rocked the world in the 1990s was slow to catch on in Japan, where two-thirds ofrevenues still come from rental. As a result, as video sellthrough soared and rental flattened, Japan a few years ago was overtaken by the United Kingdom as the world's second-biggest generator of home video revenue to Americanmovie studios.

Why has sellthrough failed to take hold in Japan? In an interview five years ago, Paul Miller, then-president of CIC Video, a joint venture between Paramount Pictures and Universal Pictures, said the reason is a mystery. "Sellthrough has failed to grow in Japan, and we're all desperately trying to find out why -- whether it's that small homes can't store hundreds of cassettes, or whether they're waiting for new technology."

Today, studios are betting it's the latter. Lexine Wong, senior v.p. of international marketing for Columbia TriStar Home Entertainment, says DVD sellthrough is gaining momentum in Japan for a number of reasons. "We moved the product up day-and-date [with VHS rental releases], so consumers are more aware of what's coming out," she says. "The quality of DVD is better than VHS, and Japanese consumers have always been very quality-conscious.

"And a DVD is smaller than a VHS cassette. When DVD was first launched, Japan was the only market where almost everything came out in jewel cases, and now I think consumers there are really starting to embrace DVD product."

A key catalyst in this embrace, according to analyst Adams, was the launch last year of the Sony PlayStation 2 video game console. "A ton of PlayStation 2 machines were sold, but there were not many games in the early days of the launch," Adams says. "Ergo, people were buying PlayStation 2s to watch movies on."

Adams believes DVD will help generate stronger video sales in Japan, but the fight's far from over, he maintains.

The country's two largest video chains, CCC (985 stores) and Sun Leisure (125 stores), are both heavily tilted toward rental. And, as Wong points out, the rental of software is ingrained in Japanese culture.

"The Japanese people have a long history of renting home entertainment products," Wong says. "For instance, in Japan you can rent music CDs, whichyou can't do here. You can actually go into a store and rent CD singles. It's a habit that has been instilled for a very long time."

But Wong remains optimistic, and so does Warner's Brown, who says DVD has already helped grow Warner's sellthrough business in Japan."DVD sales will eclipse VHS sales in Japan in 2001," he predicts. "Last year, particularly in the second half, Japanese consumers embraced DVD. And we believe this is only the beginning in developing a strong sellthrough business."