Is H’wood hindering o’seas biz?

New tech faces growing pains

SYDNEY — The explosive growth of DVD has pushed the homevideo business outside the U.S. into fast-forward.

And execs at the international vid arms of the majors couldn’t be happier, right?

Well, actually, no. The digital revolution is evolving at a significantly slower rate abroad than at home, and DVD proponents say that’s because other studios have not embraced the new format with the same gusto as Warner Bros. and Sony.

“DVD is growing fast internationally, but it’s not keeping pace with the rate of growth in the U.S. That’s a lost opportunity,” says one DVD advocate.

Some majors are striving to protect their VHS business in an overseas vidcassette market that is either flat or declining.

These companies, critics say, are not releasing product for sale on DVD fast enough after product goes out on VHS rental. There are gaps of up to four months between windows, and DVDs are not being priced at affordable levels.

Hollywood execs are reluctant to openly trash the specifics of each other’s strategies, but it’s clear there are differing views about how to grow DVD while maintaining the VHS category.

“We believe DVD revenues could overtake VHS as early as 2002 if all the studios supported DVD internationally as they do in the U.S.,” says Mark Horak, senior VP of worldwide marketing at WHV.

Other distribs, though, insist they’re fully committed to DVD, and some obliquely accuse Warner of neglecting VHS in its pursuit of DVD.

“VHS is still a giant part of our business,” says Dennis Maguire, Buena Vista Home Entertainment Intl. president. “We hope to take advantage of that as others focus solely on one piece” of software.

Vids still vital

Horak rejects suggestions that WHV is turning away from the traditional format, either in rental or sales. “The VHS sell-through business still has a lot of viability, and we are continuing to develop programs and strategies to help retailers get the most out of it for years to come,” he says.

Paramount Home Entertainment Intl. prez Phil Jackson sees a future for VHS. “Video rental continues to fool all the critics (who wrote it off),” he says. “DVD is still a premium product, but VHS is the larger format. We are determined not to give up on VHS while at the same time continuing to grow DVD.”

At Fox Home Entertainment Intl., president Stephen Moore notes the digital format generated 35% of its sell-through revenues in the 2000 fiscal year ending June 30. In the current year, he expects DVD to hit 67%.

“What is clear is that the hardcore film collector has migrated to DVD,” Moore believes. “I expect DVD will overtake VHS in Japan by the end of this year, and we’re seeing DVD get closer to VHS in some European markets.”

While Moore espouses DVD’s dominance in action and adventure films, he says the format is not strong for family and children’s fare.

And he worries that some retail outlets abroad are allocating a “disproportionately” high amount of vid shelf space for both sales and rental — as much as 50%-75% — to DVD.

Stats on the sales of DVD players are one measure of how DVD growth rates overseas lag well behind the U.S. There are now 19.6 million players in U.S. homes — nearly 25% penetration; By contrast, only 3% of households in Europe and Japan were equipped with DVD by the end of 2000.

Warner homevid has reaped the benefits of being the pioneer and most ardent proponent of DVD — fully half of its entire vid revenues overseas are generated by that format. Compare that with BV’s Maguire estimate that DVD accounted for 15%-20% of his division’s sales last year.

Still, Disney is the industry leader overseas. BVHE Intl. clocked revenues of slightly more than $1 billion last year (giving it more than 20% of the U.S. majors’ entire $4.4 billion market), according to Maguire. That marked the sixth year out of the last seven that the company’s sales topped $1 billion.

And BVHE’s revs in the first six months of this year were up 10% on the first half of 2000 — driven by DVD.

Overall, the Hollywood companies’ vid revenues outside North America tallied $1.1 billion in the first quarter, up from $972 million in the same period last year.

While distribs’ profit margins overseas are much lower on DVD than on VHS, some tradesters say that isn’t squeezing their bottom lines. “The incremental business from DVD more than offsets the revenue that’s lost from the cannibalization of VHS,” one U.S. exec asserts. “The total pie is bigger.”

(Liza Foreman in London contributed to this report.)

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