Homevideo may be the less glamorous cousin of the movie business, but in 1992 it demonstrated its status as the entertainment industry’s most consistent performer.

Despite an ongoing recession, last year was homevideo’s best ever. The Alexander & Associates research firm described 1992 as “a major comeback” for homevideo, with combined sales and rentals reaching a record $ 17 billion. That was up $ 2.375 billion from 1991 levels of $ 14.856 billion, according to the New York-based firm.

While videocassette rentals had suffered a slight 1% dip in 1991 over 1990, last year the business showed a 9.5% gain, accounting for $ 11.2 billion of the $ 17 billion total, according to A&A.

Videocassette sales were also on the rise. Sell-through titles accounted for $ 5.8 billion in 1992, compared to $ 4.6 billion in 1991, a 26% rise, A&A reports.

A&A general manager Amy Innerfield said consumers purchased 96 million more tapes in the year past than in 1991–386.8 million vs. 290.7 million–a gain she attributed to videocassettes’ falling price tag, from $ 15.93 on average in 1991 to $ 15.06 in 1992.

So what’s all this talk about the economic slump?

Even though homevideo has performed nicely in the downturn, many say it would have racked up even stronger results had the economy been more robust. Despite the overall health of the business, there have been a few bankruptcies.

Distributors and retailers accustomed to double-digit advances are now coping with more modest growth rates. And long-term, homevideo faces a potentially major competitive threat from new technologies, such as pay-per-view, DBS and CDs.

Some in the homevideo industry are stepping up their marketing programs in response. They say it’s a must for a business grappling with the mature phase of its development. Others, such as Blockbuster Entertainment Corp., are hedging their bets, making investments in the supply side of the industry.

For the majors, it’s a matter of trying to sustain growth and profitability. While nearly all are doing well, many say the recession has had its impact.

Homevideo’s strength comes from its value as a low-cost entertainment medium. A trip to the movies may put a family back more than $ 25, but a videocassette rental is a bargain at $ 2-to-$ 3.

“The Walt Disney Co. anticipated growth in 1992, regardless of what happened in the economy, because of the rising popularity of owning videocassettes,” says Buena Vista Home Video president Ann Daly.

The studio’s reading of the market proved true. “The animated blockbuster “Beauty and the Beast” topped the homevideo charts as the No.1 sell-through title last year, with an estimated 19 million units sold. And of that 19 million , there were nearly one million customers who had never before purchased a videocassette,” Daly says.

Sales at Trimark Holdings’ Vidmark unit were flat in 1992, but president and chief exec Roger Burlage says the trend is reversing itself. “We’ve seen improvenent in the last two quarters reflecting the pickup in the economy,” he say.

Live Entertainment, the parent of indie Live Home Video, filed a prepackaged plan of reorganization in February. The move was made to complete a debt restructuring that will slice $ 70 million worth of obligations off Live’s balance sheet. That leaves Live with $ 40 million of public debt, in addition to $ 50 million line of credit. Live believes it will emerge from Chapter 11, probably in late March. It should be in far better shape as the economy rebounds.

Live’s problems, said homevideo president and chief exec David Mount, stem from its parent company’s strategy of vertical integration, which left the homevideo operation holding the bag for losses in retail and at Lieberman Enterprises Inc., a rack jobber.

Live disposed of Lieberman in July 1991. The specialty retail division has reported improved store sales in the second and third quarters, and in June it secured a $ 10 million revolving credit line.

Live’s homevideo operations have been profitable for the last six years, insisted Mount.

In a surprise move earlier this year, Blockbuster Entertainment, the video retail powerhouse, put down $ 25 million to buy a 35% state in Republic Pictures. The investment leaves Republic nearly debt-free. Exex from both companies insist the deal is an investment only, “an arm’s length sort of thing, ” in Republic exec VP Steve Beeks’ words.

Beeks takes it as a sign that the major homevideo powers want independents to continue in business.

“No one wants to work in a world controlled by the majors,” sys Beeks. Some analysts think it’s an indication that Blockbuster knows it must get into new businesses given the home entertainment technological revolution that’s coming.

At a recent industry seminar, Blockbuster senior VP Ron Castell described the purchase as an opportunity for revenues and to learn a new business. But he insisted, “the spine of the company is video…Video brought us to the dance and we like the way they lead.”

Many others aim to keep tripping the light fantastic with home-video too. The Video Software Dealers Assn., for example, is out to find new ways to build video store retail traffic through a marketing program that endeavors to create a common brand for its member stores.

The Home Video Entertainment Network branding campaign, as it calls the effort, is currently engaged in a three-market, ad-backed test involving free rentals and tie-ins with the Pizza Hut. And there are plans for other marketing tests to gain further insight into what draws customers in and motivates them to rent more.

Video retailers–many of whom have felt the economic downturn more strongly than other sectors of the business–are adapting to the changing marketplace. In some cases, they are cutting rental prices; many are introducing non-traditional elements into their retailing mix.

Bart Story, director of market research at Video Store magazine, says homevideo retailers have felt the double whammy of two trends–the maturation of the homevideo market and flattening out of the growth of the economy. “Retailers saw 20%-to-25% growth in 1986-87,” he says. “By 1991-92, the growth had slipped to 6%.” With major chains such as Blockbuster Entertainment accounting for 15% of the total homevideo retail business, smaller players are forced to compete by concentrating on special niches, Story says.

Wherehouse Entertainment VP George Rogers says his chain felt the recession earlier than traditional retailers did, but didn’t get whacked as hard and is already on the mend. After a tough 1991, 1992 shaped up as a “good year,” he says, an improvement he attributes to homevideo’s basic value.

Last fall, Wherehouse took the controversial step of cutting rental prices of all movies to $ 1.79 a day. He says the affect was felt immediately.

“In this economic environment, consumers are price-conscious,” says VP George Rogers. “We’re trying to do what’s best for our customers.”

John Thrasher, VP of video purchasing and distribution for Tower Records/Home Video, says his chain has felt the effects of the downturn. Sales volume in recession-racked California, where it has a heavy concentration of stores, was down approximately 7% in 1992 compared to 1991, he says.

So far, in 1993, it’s hit-and-miss. January “looked good,” he says, “but Februrary is shaping up poorly.”

He’s cautiously optimistic that a slate of upcoming video titles, including “Last of the Mohicans” and “Under Siege,” will boost business in March. West Coast Video, the second largest video store chain in the country, which emerged from Chapter 11 bankruptcy in November 1992, believes the economy has turned a corner. VP Steve Apple says business at its stores “have picked up a bit,” although he acknowledged the growth rate is merely single-digit.

A few weeks ago, the company changed its name from West Coast Video Enterprises to West Coast Entertainment. The change reflects a new corporate strategy.

Recognizing that video-on-demand is a real possiblity in the years ahead, and the growing competition from other leisure-time activities, the company is trying new strategies.

By the end of the year, it will open a prototype store and sell an expanded array of electronic products, such as video games and personal computers. West Coast Video plans to add 43 stores in 1993, and some of those new outlets may introduce some of these new retailing elements as well.

Almost everyone believes that new technologies will eventually grab some of homevideo’s business away. But, they also insist consumers will not walk away from the video habit easily. People like to shop, they say.

Exex of major studios, and independents with production arms, say they’ll be in good shape whatever happens. Most don’t expect the pre-recorded cassettes’ market to dry up entirely, even if pay-per-view or CDs become key delivery systems for movies at home, they’ll share in that revenue. After all, they control the movies themselves.

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