Biz growth meets its digit

Home entertainment rentals, sales up a notch

It’s not the double-digit bonanza it was a few years ago, but the homevid biz will take growth anyway it can get it these days.

The good news is consumer spending on home entertainment rentals and purchases for the first nine months of the year edged up 1% to $14.7 billion, according to Video Business research.

Sales of all formats, including DVD, VHS, PlayStation Portable movies and high-def formats, were flat at $9.1 billion through Sept. 17, while studios reported a more stable market after a volatile 2005.

DVD sales were actually up 2%, according to several studios, while the VHS format, continuing its slow death, dragged the market down, with studio sales off 55% to 65%.

The rental market — which has been in a slow decline for several years — rebounded 1.7% to $5.6 billion during the first nine months.

With a fourth quarter slate that includes “Mission: Impossible III,” “The Da Vinci Code,” “Cars,” “Pirates of the Caribbean: Dead Man’s Chest,” “Over the Hedge” and “X-Men III,” many expect the year to close even with 2005 or even up a percent or two.

“I think if the third quarter is any indicator, the fourth quarter has a lot of potential,” says Lori MacPherson, general manager of North America for Buena Vista Home Entertainment. “The market overall should be very healthy because there are a lot of releases competing for consumer attention.”

A year ago, studios were bracing themselves as DVD sales softened and consumers cut back their disposable spending.

“(The summer of 2005) was a tremendous shock to all of the entertainment industries because of all of these radically increased gas prices,” Universal Studios Home Entertainment president Craig Kornblau says. “This year, clearly gas prices are back up, but it seems like we’re past that sticker-shock scenario of last year.”

For the first nine months, Warner Bros. continued to command the greatest share of the market, controlling 19.3% of it despite disappointing sales on new releases “V for Vendetta” and “Poseidon.” Disney had a 13.7% share, followed by Fox at 12.8% and Sony close behind at 12.4%.

Universal, which stopped distributing DreamWorks films during the quarter, saw its share shrink to 11%.

Paramount — which became the new distribution home of DreamWorks during the third quarter — didn’t get the benefit of these numbers either, and finished with a 9.4% share.

While sales of new-release titles held steady, Warner, Paramount and Sony say overall new-release spending was slightly off because of increased price competition among retailers.

Meanwhile, lower than expected sales on such titles as

“V for Vendetta” and “Poseidon” caused some retailers to wonder whether the male demo is cutting back on DVD purchases.

“There’s a little bit of worry,” concedes Ron Sanders, president of Warner Home Video. “We’re looking into why that is. There’s a lot of competition for the young male’s time with the Internet, game formats, YouTube, MySpace, PS3 …”

Retail shelf space remains crowded and some expect it to tighten even more in the coming months as retailers devote more space to hi-def releases.

“It’s still really crowded, and for the foreseeable future I think it’s gonna stay that way,” Lionsgate Entertainment prexy Steve Beeks says. “The theatrical business is getting very crowded. Studios are having a tough time having movies stand out. It’s flowing through to home entertainment.”

Trevor Drinkwater, CEO of indie supplier Genius Products, says it’s been tougher to get placement at retail for lesser titles and he expects there may be some price pressure on new releases in the fourth quarter with growth flat and retailers competing for market share.

“It’s getting more and more difficult if you don’t have critical mass — if you don’t have good titles to walk into retail with,” he explains.

Despite this downward pricing trend, nearly every studio reports that catalog sales were up in the third quarter.

Sony reports a dramatic 35% growth in its catalog business.

“I think it’s really kind of the benefit that we got from the MGM relationship,” Sony homevid worldwide prexy David Bishop says. “Having that additional MGM library made the company think about library in a way that it never did.”

TV-on-DVD continued its role as a key sales driver, though overall sales for that genre were down because of fewer releases — the studios have mostly mined their TV vaults at this point.

Still, season-two releases for titles “Lost” and “The Office” are selling at rates on par or even above first-season packages, showing that consumers haven’t tuned out the category.

Rental also rebounded after years of slow declines.

“Overall, we’re hearing positive things with companies like Netflix,” says Paramount worldwide homevid prexy Kelley Avery. “We’re hearing the business has been stronger in the rural markets, the Movie Gallery arena. All in all, the combination of the slate and having some good solid retail performers out is bringing the business up.”

On the sell-through side, Fox homevid exec VP and G.M. Simon Swart says studios and retailers will have to get smarter in how they market their releases now that the disc business isn’t growing like it once was.

“Everybody can easily lower prices, but that’s not really being smarter,” Swart says. “We’ve still got one of the hottest categories in the industry. The challenge we have is to keep it relevant and exciting.”

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