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DVD explosion a slow burn in West Europe

Last year's consumer spending on DVDs almost doubled

LONDON – For the first time, consumers in the main European territories spent more coin on buying and renting DVDs than they forked out on VHS cassettes last year.

Is Hollywood happy? Kind of.

“We’ve seen phenomenal growth in the DVD market across Europe this year,” says Matt Brown, head of international video at DreamWorks. “The charge has been led by the U.K., France and Germany.

“It’s true that Western Europe lags behind the U.S., but by 2006 Europe will have caught up with the States.”

This may turn out to be wishful thinking. What is undeniable is that DVD, launched in Europe in 1998 — a year later than in the U.S. — is now the most popular home entertainment format in Europe.

By the end of 2002, more than 18% of TV households in Western Europe owned at least one DVD player or recorder — more than double the previous year.

Forecasters predict that by January, 30% of homes across Western Europe will own a DVD player or recorder; this falls to 27% if Central European territories are included.

Estimates suggest there are nearly 29 million DVD players installed in Western European homes; in the main Central European territories, the penetration rate lagged behind, at just 2.6% by the end of 2002.

The studios are hoping that the Western European penetration levels will drive what some say is a much-needed growth spurt in consumer spending on DVD software.

Taken as whole, last year’s total consumer spending on DVD almost doubled, easily compensating for the losses in the VHS market.

European consumers spent almost E6.5 billion ($7.5 billion) on DVD titles in 2002 compared with around $5.5 billion on VHS titles, according to Screen Digest.

But while the headline figures make happy reading for the Hollywood number crunchers (feature films represented 76% of the retail market), not all territories are performing as well as the studios had hoped.

And despite a steep growth curve in terms of hardware take-up, in some important markets like Germany the number of titles bought per household is already in decline.

“The U.K., France and, to a certain extent, the Benelux countries are all high-performing markets, but in Germany, Spain and Italy we haven’t seen the real depth and velocity of growth that we are hoping for,” says Keith Feldman, executive VP of international marketing and sales at Fox.

The German DVD rental market accounted for 51.5 million transactions in 2002 (compared with 57 million in the U.K. and 28.8 million in France), but sales were way below the other two European market leaders, 35.5 million units compared with Blighty’s 89.8 million and France’s 51.8 million.

“Germany is an interesting global case study,” Feldman says. “I think the problem starts with the fact that German consumers have never invested the same amount of money in cinema-going and home entertainment as the U.S. and many international markets.

“Germany has always been a very weak VHS market. Although we are seeing much more rapid uptake of DVD in Germany than VHS, there is still a lot of room for growth.”

While the average annual number of DVD sales per household in 2002 remained broadly static in both the U.K. and France (at 13 and nine respectively), in Germany they fell by 27.5% — from 6.1 to 4.5.

Feldman thinks the studios need to import U.S.-style retailing methods to such sluggish territories as Germany and, to a lesser extent, Spain, where the number of sales per household also fell in 2002 — from 7.3 units to 6.8.

“In markets like Germany DVDs tend to be sold in specialist stores rather than in supermarkets,” he says. “If the format is going to be an entertainment choice for the masses we need to go beyond those outlets.”

More space for retailing DVDs has to be allocated in “opportunity markets” like Germany and Spain, Feldman says.

The studios may also consider revisiting the thorny issue of simultaneous rental and retail release patterns, he argues.

To boost DVD sales, all the studios except Buena Vista have abolished the traditional video rental window and are instead introducing premium prices for rental DVDs in some or all European territories.

“This approach works when consumers consume at a high level, but careful thought needs to be given in a market like Germany where rental levels are so high,” Feldman adds.

“Going forward the challenge is to develop strategies for consumers who are consuming at the lowest level.

“In Italy and Spain around 40% of households who have bought DVD players are not using them (the U.K. figure is under 20%). They are not renting or buying.

“This is a great worry, especially since traditionally early adopters are the heaviest users.”

Reducing prices or providing incentives to get consumers into the habit of buying DVDs, such as free software or money off for bulk purchases, might be one way forward.

Better marketing is also necessary, suggests Feldman, and not only for blockbuster titles.

“We need to look beyond the investment we’re making in a particular movie. There’s got to be long-term investment in building the category,” he maintains.

Prices need to be carefully examined too. In the U.K. the average price of a DVD is $2.60 more than in Germany, but that has not stopped consumers from buying software.

“Some of these markets do represent a serious problem for DVD,” Feldman concludes. “But the studios do have an opportunity to play a role in changing it.”

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