Home entertainement still expanding
But DVD growth more modest; WHV holds top share
Jennifer Netherby -- Video Business, 7/22/2005
JULY 22 | DVD is beginning to show its age.
Although consumer spending on home video remained strong at $11.4 billion during the first half of the year, overall growth began to moderate at 1.1% as the number of consumers yet to switch from VHS to DVD dwindled and the recent converts bought fewer discs than earlier adopters. [Check www.videobusiness.com on Monday, July 25, for full charts]Home video sales grew 2.5% during the period, with consumers spending $7.4 billion, according to Video Business research.Rental spending was almost flat at 0.4% with sales of previously-viewed DVDs included, according to Rentrak. Without sales of used discs added in, rentals slipped 2.3%.DVD sales made up the vast majority of sales and rentals, with VHS now just a 7.9% slice of the video market."It's the beginning of the mature phase of the DVD market," said Buena Vista Home Entertainment president Robert Chapek. "The growth plateau of the market is now coming into sight as the purchasing patterns of consumers starts to moderate."The last DVD adopters are buying seven DVDs on average each year, about half the amount bought by earlier adopters, according to 20th Century Fox Home Entertainment. Early adopters continue to buy about 16 DVDs on average each year, down from a high of 17 DVDs, according to Fox.The maturation of the market and subsequent growth slowdown has made for a mixed six months for studios' home entertainment divisions.While Fox, Paramount Home Entertainment and Universal Studios Home Entertainment posted strong revenue and market share gains over the first half of 2004, Warner Home Video, Buena Vista, Sony Pictures Home Entertainment and MGM Home Entertainment all saw declines in revenue and market share. Most of that was due to a dropoff in VHS sales and rentals for which DVD growth couldn't compensate.Warner is still No. 1 in market share with a 19.9% share, though the studio's sales drooped 5.4%, due to VHS falloff.Warner's Troy was the No. 6 top performer for the first half with $145 million in revenue ahead of the $133 million it pulled in at theaters, but Ocean's 12 pulled in just $103 million, below its box office take of $126 million.Even with the two of the Top 3 DVD performers--The Incredibles and National Treasure--No. 2 ranked Buena Vista's market share slid to 17.5% and revenue was off 0.4% due to a decline in VHS sales.No. 3 market performer Universal showed strong growth during the first half of the year, helped by sales on DreamWorks Home Entertainment's Shark Tale and Meet the Fockers, which brought the Universal's total market share to 15%.Fockers was the top renting title during the first half, and Universal had some of the top DVD overperformers with Friday Night Lights and Ray, both of which had DVD revenue roughly double their box office grosses."We're capitalizing on everything," said Universal president Craig Kornblau. "You can't just say focus on TV or good publicity. It's really important to pick the right date, to be very strategic and make sure every aspect of the marketing campaign count."Fox posted 30% growth for the period, despite having no titles among the Top 10 DVD performers. Instead the studio worked niche releases Napoleon Dynamite, Flight of the Phoenix and box office disappointments AVP: Alien vs. Predator and Elektra."We're punching above our weight here." Fox president Mike Dunn said. The studio also has continued to see strong sales on Family Guy Vol. 1 and Vol. 2, both released in 2003, and The Simpsons: Season 5, released in December. "The DVD consumer is gradually becoming more film literate, and it's a broad market with people buying all sorts of different things."Revenue at Paramount was up 32% for the first half of the year, bringing the studio's total market share to 9.6%. Paramount began pumping out more TV titles this year, including top-seller Chappelle's Show: Season 2, and had theatrical new releases The SpongeBob SquarePants Movie, Lemony Snicket's A Series of Unfortunate Events and Team America: World Police.Lions Gate Home Entertainment, now in the second year of its merger with Artisan Entertainment, maintained its 3.9% share of the market with the help of some of its best DVD sellers ever, including Saw and Diary of a Mad Black Woman."The great thing about our films is the genres in which we tend to operate tend to over index their box office," Lions Gate president Steve Beeks said.Similarly, Sony has found success with such arthouse titles as House of Flying Daggers, which is expected to triple its box office on DVD. Still, that and sales of Hitch weren't enough to keep the studio's revenue from declining 19% during the first half. The studio was competing against a 2004 slate that included S.W.A.T., Something's Gotta Give and Radio.WHV president Jim Cardwell said it's become harder to predict how certain titles will perform on DVD because of increased competition from TV shows and catalog titles."There's less consistency in the marketplace," Cardwell said.New releases with a box office between $20 million and $80 million continued to outpace their box office take, but it was another story with the biggest box office films.DreamWorks has twice warned investors about disappointing sales and returns of Shrek 2, while Pixar put out a warning that The Incredibles sales would fall short of expectations also due to early returns by retailers. Buena Vista has sold roughly 15 million units of Incredibles, making it the top seller in the first half of the year but pitting it below sales of Finding Nemo and Monsters, Inc., which both crossed the 20 million unit mark."Last year's fourth quarter and first half of this year reflected that for big box office movies, there's a cap," said Sony head Ben Feingold. "The ceiling is much lower for huge pictures than what people had hoped. Shrek 2, Spider-Man 2, Harry Potter and the Prisoner of Azkaban, The Incredibles all reflect that. That's the state of the big tentpole."While some blame over shipments on Incredibles and Shrek 2 for the disappointing results, others say there is a shift in the market in terms of what type of DVDs consumers are willing to spend their money on. Although sales on new releases increased 6.8%, catalog sales grew by 7.7% during the first half while TV sales were up 31%.As DVD growth slows, studios also are facing more pressure with new releases at retail, where shelf space is tight due to the flood of catalog and TV releases. Retailers are returning product quicker, making it more crucial that studios push for as many sales in the first few weeks a title is released than in previous years.New Line Home Entertainment, which relies on new release titles for the majority of its business, is feeling the crunch even more than some with few catalog or TV titles to balance out its slate.
JULY 22 | DVD is beginning to show its age.
Although consumer spending on home video remained strong at $11.4 billion during the first half of the year, overall growth began to moderate at 1.1% as the number of consumers yet to switch from VHS to DVD dwindled and the recent converts bought fewer discs than earlier adopters. [Check www.videobusiness.com on Monday, July 25, for full charts]
Home video sales grew 2.5% during the period, with consumers spending $7.4 billion, according to Video Business research.
Rental spending was almost flat at 0.4% with sales of previously-viewed DVDs included, according to Rentrak. Without sales of used discs added in, rentals slipped 2.3%.
DVD sales made up the vast majority of sales and rentals, with VHS now just a 7.9% slice of the video market.
"It's the beginning of the mature phase of the DVD market," said Buena Vista Home Entertainment president Robert Chapek. "The growth plateau of the market is now coming into sight as the purchasing patterns of consumers starts to moderate."
The last DVD adopters are buying seven DVDs on average each year, about half the amount bought by earlier adopters, according to 20th Century Fox Home Entertainment. Early adopters continue to buy about 16 DVDs on average each year, down from a high of 17 DVDs, according to Fox.
The maturation of the market and subsequent growth slowdown has made for a mixed six months for studios' home entertainment divisions.
While Fox, Paramount Home Entertainment and Universal Studios Home Entertainment posted strong revenue and market share gains over the first half of 2004, Warner Home Video, Buena Vista, Sony Pictures Home Entertainment and MGM Home Entertainment all saw declines in revenue and market share. Most of that was due to a dropoff in VHS sales and rentals for which DVD growth couldn't compensate.
Warner is still No. 1 in market share with a 19.9% share, though the studio's sales drooped 5.4%, due to VHS falloff.
Warner's Troy was the No. 6 top performer for the first half with $145 million in revenue ahead of the $133 million it pulled in at theaters, but Ocean's 12 pulled in just $103 million, below its box office take of $126 million.
Even with the two of the Top 3 DVD performers--The Incredibles and National Treasure--No. 2 ranked Buena Vista's market share slid to 17.5% and revenue was off 0.4% due to a decline in VHS sales.
No. 3 market performer Universal showed strong growth during the first half of the year, helped by sales on DreamWorks Home Entertainment's Shark Tale and Meet the Fockers, which brought the Universal's total market share to 15%.
Fockers was the top renting title during the first half, and Universal had some of the top DVD overperformers with Friday Night Lights and Ray, both of which had DVD revenue roughly double their box office grosses.
"We're capitalizing on everything," said Universal president Craig Kornblau. "You can't just say focus on TV or good publicity. It's really important to pick the right date, to be very strategic and make sure every aspect of the marketing campaign count."
Fox posted 30% growth for the period, despite having no titles among the Top 10 DVD performers. Instead the studio worked niche releases Napoleon Dynamite, Flight of the Phoenix and box office disappointments AVP: Alien vs. Predator and Elektra.
"We're punching above our weight here." Fox president Mike Dunn said. The studio also has continued to see strong sales on Family Guy Vol. 1 and Vol. 2, both released in 2003, and The Simpsons: Season 5, released in December. "The DVD consumer is gradually becoming more film literate, and it's a broad market with people buying all sorts of different things."
Revenue at Paramount was up 32% for the first half of the year, bringing the studio's total market share to 9.6%. Paramount began pumping out more TV titles this year, including top-seller Chappelle's Show: Season 2, and had theatrical new releases The SpongeBob SquarePants Movie, Lemony Snicket's A Series of Unfortunate Events and Team America: World Police.
Lions Gate Home Entertainment, now in the second year of its merger with Artisan Entertainment, maintained its 3.9% share of the market with the help of some of its best DVD sellers ever, including Saw and Diary of a Mad Black Woman.
"The great thing about our films is the genres in which we tend to operate tend to over index their box office," Lions Gate president Steve Beeks said.
Similarly, Sony has found success with such arthouse titles as House of Flying Daggers, which is expected to triple its box office on DVD. Still, that and sales of Hitch weren't enough to keep the studio's revenue from declining 19% during the first half. The studio was competing against a 2004 slate that included S.W.A.T., Something's Gotta Give and Radio.
WHV president Jim Cardwell said it's become harder to predict how certain titles will perform on DVD because of increased competition from TV shows and catalog titles.
"There's less consistency in the marketplace," Cardwell said.
New releases with a box office between $20 million and $80 million continued to outpace their box office take, but it was another story with the biggest box office films.
DreamWorks has twice warned investors about disappointing sales and returns of Shrek 2, while Pixar put out a warning that The Incredibles sales would fall short of expectations also due to early returns by retailers. Buena Vista has sold roughly 15 million units of Incredibles, making it the top seller in the first half of the year but pitting it below sales of Finding Nemo and Monsters, Inc., which both crossed the 20 million unit mark.
"Last year's fourth quarter and first half of this year reflected that for big box office movies, there's a cap," said Sony head Ben Feingold. "The ceiling is much lower for huge pictures than what people had hoped. Shrek 2, Spider-Man 2, Harry Potter and the Prisoner of Azkaban, The Incredibles all reflect that. That's the state of the big tentpole."
While some blame over shipments on Incredibles and Shrek 2 for the disappointing results, others say there is a shift in the market in terms of what type of DVDs consumers are willing to spend their money on. Although sales on new releases increased 6.8%, catalog sales grew by 7.7% during the first half while TV sales were up 31%.
As DVD growth slows, studios also are facing more pressure with new releases at retail, where shelf space is tight due to the flood of catalog and TV releases. Retailers are returning product quicker, making it more crucial that studios push for as many sales in the first few weeks a title is released than in previous years.
New Line Home Entertainment, which relies on new release titles for the majority of its business, is feeling the crunch even more than some with few catalog or TV titles to balance out its slate.
"One could argue on new release business there's certainly less clarity and less confidence in our expectations," New Line president Stephen Einhorn said.
"One could argue on new release business there's certainly less clarity and less confidence in our expectations," New Line president Stephen Einhorn said.
