Discount stores are a video lover's channel of choice

Discount Store News, August 10, 1998

LAS VEGAS -- Discount stores remain the undisputed kings of home video sales.

Despite the slow growth of sell-through home video, spending reached $7.59 billion in 1997, and more than half of those sales went to mass merchants, according to statistics published by the Video Software Dealers Association at its 17th annual convention, which took place last month at the Las Vegas Convention Center.

Video purchases were up 3% in 1997, while the number of units sold reached 634.9 million, up 6% from 1996, according to Tom Adams of Adams Media Research, a consulting firm based in Carmel Valley, Calif.

In its annual report on the state of the home video industry, VSDA reported that 52.7% of consumers who purchased videos Last year bought them in a mass merchant outlet.

To no one's surprise, discount retailing's Big Three--Wal-Mart, Kmart and Target--dominate home video sales. However, a large number of other classes of retail trade enter the video business on an opportunistic basis, often using videos as loss leaders and traffic builders.

According to the VSDA's annual report on the home video market, the number of storefronts that sell at least some limited selection of videos swelled to more than 100,000 during the fourth quarter holiday selling season. Although the growth of sell-through slowed in 1996 after showing double-digit increases in units and dollar sales from 1993 to 1996, at least part of the decline is attributable to a relative lack of major hit titles.

In 1996, several major titles such as Buena Vista Home Entertainment's "Toy Story," Twentieth Century Fox s "Independence Day" and Warner Home Video's "Twister" helped give a significant boost to the sell-through home video market.

Last year lacked that kind of box office drawing power, but video industry observers have high hopes for Paramount Home Video's Sept. 1 release of "Titanic," the highest grossing film of all time, Columbia TriStar Home Video's impending release of "Godzilla," and the probable fourth quarter sell-through priced release of DreamWorks' "Small Soldiers."

The dearth of blockbuster films tells only part of the story about the slowdown in growth of home video sales.

The number of video purchasing households is reaching the saturation point, with about 82 million VCRs in U.S. households for an overall penetration of about 84%.

Consumer research has shown that households that purchase a new VCR and then purchase one video go on to purchase many more videos. As the number of new VCR households slows and ownership reaches the saturation point, the rate of growth in video sales is expected to slow. But analysts expect the sell-through video business to keep growing for several years, only at a much slower pace.

Consumers may also be running out of space to store all of the videos they own. Other studies show that households with VCRs now have collections of up to 50 videos.

Although a multitiered pricing structure for DVD is developing, most titles are currently priced well within the sell-through price point threshold of about $25.

DVD players and software have been in national distribution in for slightly less than one year, but the initial response to the technology has been positive for mass retailers such as Best Buy, Musicland and Circuit City.

Unlike the VCR, DVD is an evolutionary technology- rather than a revolutionary one-despite the fact that it has numerous advantages over the VHS format.

Target has begun selling DVD in selected locations. A Target in West Nyack, N.Y., two weeks ago was offering four players and more than 50 software titles. It was also running a promotion that offered two free titles with the purchase of a player.

Kmart has been selling players and software in its supercenters since late 1997. Wal-Mart is expected to roll out DVD in selected stores next year. Wal-Mart has also been aggressively promoting a large number of DVD titles and a small selection of players on its electronic commerce site on the Web.

While the initial reaction to the format has been positive, many analysts expect that it will be well after the year 2000 before DVD players become as ubiquitous as the VCR.

COPYRIGHT 1998 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2008 Gale, Cengage Learning

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