Blu-ray helped offset drops in consumer spending

Click for 2008 Q1 Market Share and Top Titles

APRIL 18 | Consumer spending on home video rentals and purchases in the first quarter was virtually dead even with last year, as growing Blu-ray Disc sales helped offset the effects of the unstable U.S. economy.

Plummeting real estate values and rising gas prices, among other economic factors, have combined to create one of the toughest retail climates in years. In addition, the cumulative box-office of new releases was about 8% less than last year, according to studios.

For the first three months of 2008, however, consumer spending on rentals and purchases of all home entertainment formats slipped just 0.3% to $5.6 billion, as the sell-through business edged up 0.5% to $3.5 billion, while rental fell 1.1% to $2.1 billion.

First-quarter 2007, in comparison, was off by 5.1%. This year’s first quarter, however, benefited from 400% to 500% growth in high-def disc sales, which were somewhere in the neighborhood of $150 million for the quarter, offsetting a slight dip in DVD sales, according to several studios. (VHS, which for a number of years has dragged down the industry’s overall growth, has finally ceased to be a factor.)

Even the quarter’s top performer, Warner Home Video’s March 18 release I Am Legend, was a little slow out of the gate, admitted division president Ron Sanders.

“We were a little disappointed on the performance of I Am Legend. There was more buying over Easter; still, we are a little behind what we thought,” said Sanders. “I think there is general worry about gas prices and how many trips families will take. Retailers say that is hurting comparable store sales, as people are consolidating and making fewer stops. That potentially hurts destination trips for street date sales.”

Walt Disney Studios Home Entertainment also is concerned about increasingly pinched DVD fans but is taking solace in consumers motivated to adopt Blu-ray after the end of the format war.

“Ninety-five percent of [sales] growth was driven by Blu-ray,” said Lori MacPherson, Disney general manager of North America, according to studio calculations. “Consumers now have one less reason to wait, since they know what the next-generation format will be.”

There were also triumphs during these tough times, as Lionsgate turned in the biggest quarter in its company’s history, said president Steve Beeks. The studio’s U.S. market share rose to 9.1%, up from 6.7% share during first-quarter 2007. Lionsgate flourished on the appeal of several of its titles, including five in the Top 20 sellers: 3:10 to Yuma, Tyler Perry’s Why Did I Get Married?, Good Luck Chuck, Saw IV and War.

“The strength of the first quarter shows that home entertainment is still a growth business,” said Beeks. “There have been a lot of people trying to kill home entertainment for the past year, but consumers are still embracing packaged media.”

Studio innovation, such as this year’s widening availability of digital copy, bolstered the industry as well. Warner research shows that copy-embedded discs are pushing consumers to buy more DVDs overall in one shopping trip.

But for most studios, Blu-ray was the brightest first-quarter spot.

Sony Pictures Home Entertainment president David Bishop credits the brisk sales of his parent company’s PlayStation 3 game console, which plays Blu-ray discs.

“There is growing awareness that it’s not just a game machine,” said Bishop. “We are also seeing buying intent going up. There had been a lot of fence-sitters who were not sure about the format. But there is a clearer path for the consumer now that the war is over.”

The studio consciously installed PS3’s into Blu-ray demo kiosks at Blockbuster stores nationwide in order to better drive home the fact that the console plays high-def movies as well as games.

For the quarter, Blu-ray sales accounted for 7% to 8% of all home entertainment sales, said Bishop, although other studio estimates put it nearer to 5%.

Looking ahead, studios hope that Blu-ray sales continue to prop up consumer spending. But that depends on further convincing PS3 owners to watch movies, studios said.

With Blu-ray making a mark, “we are re-calculating what our forecast will be for the year,” said Sanders. “We are still assuming 2008 will be down from 2007. But there are unknowns. How much Blu-ray hardware can we ship out? How many PS3 households can we convert to buying BD titles? We did see a big spike over Christmas.”

In other first-quarter highlights, studios touted titles that beat expectations, a more challenging feat in a maturing DVD world.

Disney’s made-for-DVD title Snow Buddies destroyed the law of diminishing returns, as it doubled the performance of earlier franchise installment Air Buddies.

Warner’s The Assassination of Jesse James on DVD should outdo its $4 million U.S. box office by four times. Similarly, Sony’s Across the Universe will outpace its domestic box office. Universal Studios Home Entertainment’s American Gangster has sold a respectable 5 million units, generating $90 million in rental and sell-through revenue.

“With DVD box office being down 8%, it’s amazing the industry is down” just slightly, Universal president Craig Kornblau said. “We have tremendous stability in this tough environment.”

Danny King contributed

Q1 Top DVD Sellers

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The Game Plan (Disney)

Rank

Title (label/distributor)

Release date

1

I Am Legend (Warner)

March 18

2

Enchanted (Disney)

March 18 

3

American Gangster (Universal)

Feb. 19

4

Bee Movie (DWA/Paramount)

March 11

5

Jan. 22

6

Snow Buddies (Disney)

Feb. 5

7

3:10 to Yuma (Lionsgate)

Jan. 8

8

No Country For Old Men (Disney)

March 11

9

101 Dalmatians (Disney)

March 4

10

Resident Evil: Extinction (Sony)

Jan. 1

11

Tyler Perry’s Why Did I Get Married? (Lionsgate)

Feb. 12

12

Saw IV (Lionsgate)

Jan. 22

13

Beowulf (Paramount)

Feb. 26

14

Family Guy: Blue Harvest (Fox)

Jan. 15

15

Good Luck Chuck (Lionsgate)

Jan. 15

16

War (Lionsgate)

Jan. 1

17

We Own the Night (Sony)

Feb. 12

18

Across the Universe (Sony)

Feb. 5

19

The Brave One (Warner)

Feb. 5

20

Hitman (Fox)

March 11

Source: VB research/Rentrak

Q1 Top DVD Renters

Rank

Title (label/distributor)

Release date

1

3:10 to Yuma (Lionsgate)

Jan. 8

2

Good Luck Chuck (Lionsgate)

Jan. 15

3

The Game Plan (Disney)

Jan. 22 

4

American Gangster (Universal)

Feb. 19

5

Mr. Woodcock (Warner)

Jan. 15

6

The Brave One (Warner)

Feb. 5

7

War (Lionsgate)

Jan. 1

8

The Kingdom (Universal)

Dec. 23

9

We Own the Night (Sony)

Feb. 12

10

Michael Clayton (Warner)

Feb. 19

11

No Reservations (Warner)

Feb. 12

12

No Country For Old Men (Disney)

March 11

13

Resident Evil: Extinction (Sony)

Jan. 1

14

Gone Baby Gone (Disney)

Feb. 12

15

Beowulf (Paramount)

Feb. 26

16

The Heartbreak Kid (Paramount)

Dec. 26

17

Rush Hour 3 (New Line/Warner)

Dec. 23

18

Saw IV (Lionsgate)

Jan. 22

19

I Am Legend (Warner)

March 18

20

The Bourne Ultimatum (Universal)

Dec. 11

Source: VB research/Rentrak

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