Consumer spending down on vid sales, rentals

Consumer spending on home entertainment sales and rentals slipped 4.8% to $10 billion during the first half of 2007, according to Video Business research.

Studio homevid toppers continue to attribute the slide to a relatively weaker slate of pics arriving on DVD in the first and second quarters, and not consumers growing tired of DVD.

“The Universal slate in the first half was weaker than it’s been in a decade,” says U homevid prexy Craig Kornblau. “Come the back half of the year when the big titles come in, that will change.”

The cumulative box office of films released on DVD in the first half of 2007 was off 5%, and there were fewer titles with a box office topping $100 million.

“Those big $100 million movies lift all boats in the category,” says Fox Home Entertainment prexy Mike Dunn, who notes that big hits also bring consumers into stores, where they end up making impulse purchases on smaller pics, catalog and TV titles.

In the period ending June 24, DVD sales took the biggest hit, sliding 6.5% to $6.2 billion, while rentals were off 3.3% at $3.8 billion.

The measure wasn’t just about quantity but quality — the big movies from the first half of this year just weren’t as big as those from 2006.

A slate topped by bestsellers “Happy Feet,” “Night at the Museum” and “The Departed” — the three generated more than a combined $1.2 billion worth of worldwide box office — wasn’t enough to lift sales above last year when “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” “Harry Potter and the Goblet of Fire” and “King Kong” conquered video (those three tallied about $2.2 billion in global box office receipts).

With box office on summer releases due on DVD in the second half already up 5% over last year, homevid execs are cautiously optimistic that consumer spending will be flat by the end of the year, with some even predicting a small increase.

“Everybody is expecting the biggest fourth quarter ever, given the strength of this summer’s films,” says New Line Home Entertainment executive VP of marketing Matt Lasorsa.

Meanwhile, unlike last year at this time, when he described the market as “tenuous” — and sales were sometimes off as much as 10% from projection — Warner homevid prexy Ron Sanders says the performance of titles in the first half of ’07 has been more predictable.

“We were worried that that kind of trend would continue this year, but it rebounded back to what it was previously,” he says.

Sanders adds that Warner titles “Happy Feet,” “The Departed,” “Blood Diamond” and “Letters From Iwo Jima” all outperformed expectations, which allowed the studio to hold its No. 1 market-share position with 17.9%.

Fox, Sony, Paramount and Lionsgate all made significant market-share gains since the first half of 2006.

Fox, having added MGM distribution over the last year, pulled into the No. 2 slot, with a 17% share thanks to strong new release that included “Night at the Museum” and strong catalog sales.

Sony, which had the biggest share of rentals during the period and saw 40% growth in its catalog sales, was No. 3 with a 15.7% share.

Paramount grew its market share to 11.9% with the added distribution of DreamWorks and a strong first-quarter slate that included “Charlotte’s Web,” “Flags of Our Fathers” and “Dreamgirls.”

Disney and Universal both saw their shares shrink due to weak release slates. Disney’s “Apocalypto” wasn’t enough to compete against the prior year’s “Narnia” and “Chicken Little” releases.

Universal had no big releases.

While catalog sales were off 5% industrywide by most estimates, Paramount, Sony, Fox and Lionsgate all reported gains.

Paramount worldwide home entertainment prexy Kelley Avery says tie-ins with theatrical releases helped the studio grow its catalog business — or, more notably, its “Shrek 2″ business.

“There’s still a market out there for ‘Shrek,'” Avery observes.

Indeed, “Shrek the Third” is likely to make its own dent come the back half of 2007 — along with a summer blockbuster yield that also includes “Transformers,” “Ratatouille” and “Spider-Man 3,” just to name a few big titles.

Will that be enough to push homevid back into growth mode by the end of the year?

Sony insists households, on average, aren’t buying fewer discs than during the halcyon days of DVD consumer spending growth. Sony released data showing that U.S. households went from buying 12.5 discs on average four years ago to 14.4 last year.

Meanwhile, the emerging Blu-ray and HD DVD formats aren’t producing big numbers for the studios yet, but their sales have at least grown to the point where they now offset the negative affects of VHS, which continues, at least to a small extent, to haunt homevid balance sheets from the grave.

Most studios plan to release movies day and date on DVD and one or both of the high-definition formats in the fourth quarter.

“What is likely to happen as the (DVD) business starts to flatten or trend downward is it becomes less exciting for retail and they dedicate less space to it,” says Sony Pictures Home Entertainment worldwide president David Bishop, who hopes the new high-def products will goose that excitement.

Digital sales, meanwhile, are small but growing.

“It’s showing itself to be not only real but the potential to be significant and accretive to the overall home entertainment business,” says Lionsgate prexy Steve Beeks.

For his part, Warner’s Sanders wouldn’t mind pushing the rental biz sooner rather than later toward a digital video-on-demand model, where the studios would get better margins.

“There’s still an ingrained habit with people to rent,” he says. “We’re hoping VOD and other digital options will grow that pie.”

Still, the homevid business’ fortunes — at least for the time being — will ride on how many standard DVDs are sold.

“In the consumer’s mind, DVD is still really primary,” says Disney home entertainment general manager of North America Lori MacPherson. “There’s a lot of news about digital and Blu-ray, and that’s exciting. For the mainstream consumer, they’re still thinking about their DVD library, though a lot of them are dabbling in new formats.”

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