Growth flat as markets hit maturity, prices decline
OCT. 9 | For better or worse, DVD sales internationally have caught up with the U.S.
The shiny disc format launched around the world about a year after its 1997 U.S. intro, and for several years, the international markets played catch-up.
Today, however, the aggregate foreign sell-through market is roughly on par with the domestic one, and it has some comparable challenges—for one, it’s not growing anymore.
“DVD had a bigger impact, relatively, internationally,” said Adrian Alperovich, senior executive VP of international for Sony Pictures Home Entertainment, noting that consumers’ VHS purchase habits were weaker in international territories and limited only to children’s product.
For the first eight months of 2006, consumer spending on DVD outside the U.S. represented about 7.1 billion Euros, or about $8.8 billion, according to Media Control GfK International, which collects point-of-sale data from retailers around the world. That’s close to U.S. consumer purchases year-to-date through mid-September.
In Western Europe, sell-through revenue was off 7.4% through the first six months of 2006, while unit sales were down a comparable 7.7%, according to Media Control GfK.
In English-speaking territories such as Australia, New Zealand and the U.K., unit sales were actually up 10.2%, but revenue fell 1.1% to $2.6 billion due to downward price pressure.
In Japan, revenue and units are essentially “flat to a little bit up, because of pricing,” which, counter to the rest of the world, remains high, said Jim Yardley, VP of sales and marketing in the U.S. for Japan-based anime specialist Geneon Entertainment.
“Even though many international markets were beginning DVD development later than in the U.S., they pretty much matured at the same time,” said Buena Vista Worldwide Home Entertainment president Bob Chapek. “In 2005, DVD stopped across the world as a growth engine.”
In aggregate, the international market is flat on volume, but experiencing “a value decline that is directly driven by price declines,” said Kelley Avery, president of worldwide home entertainment for Paramount Pictures.
In the U.K., she said, prices have declined an average of 12% recently, representing the biggest drop of any territory.
Avery attributes declining prices to a shift in consumer taste—away from more profitable new-release hits and toward catalog titles.
In fact, catalog titles represent 75% of units sold in 2006 internationally, but only 64% of revenue, according to Media Control GfK. In 2005, catalog titles were 70% of units and 59% of revenue.
Like in the U.S., softness in new releases also is being offset to some degree by the still-growing popularity of TV on DVD, with the genre driven by both U.S. exports and locally produced programming, particularly in Japan.
Avery also noted that foreign retailers are quickly reducing prices on new releases. That dynamic is driven by the fact that stores are smaller, on average, than in the Wal-Mart-laden U.S., making the competition for both display space and retail advertising dollars more fierce.
Meanwhile, international markets face unique challenges. In some territories—particularly in developing countries—pirated product can account for as much as 90% of the consumer DVD market.
Amy Heller, Media Control GfK’s U.S. president, pointed out the increased legitimate competition U.S. studios also experience overseas. Although all non-majors combined represent only about 10% of U.S. DVD sales, in international markets non-studio revenue can approach 40% because of the presence of strong international distributors selling both local programming and even some Hollywood titles licensed for foreign markets.
As in the U.S., studios are looking to new high-definition disc formats HD DVD and Blu-ray Disc to reignite growth.
“Blu-ray will provide a renewed growth engine,” predicts Buena Vista’s Chapek, referring to the high-def packaged media format developed by Sony and supported by Disney, among other studios. And the release windows between the U.S. and other countries “will be tighter. It won’t take so long for the technologies to expand around the world.”
In many territories, particularly Japan and South Korea, consumers are more tech-savvy and better equipped than in the U.S., with a greater penetration for broadband and high-def displays, executives noted.
Sony’s Alperovich gives high-def discs—in particular, Blu-ray—the edge over digital distribution, at least for a time.
“The bigger opportunity short-term is Blu-ray,” he said, because of the mass deployment of high-def displays around the world.