First half has both highs, lows

Modest increase in home video spending

JULY 12 | More than 84% of the record $10.7 billion in home video spending so far this year has been on DVDs.

More than $9 billion was spent renting and buying prerecorded discs in the first 25 weeks of the year, another giant leap of about 30% over the first six months of 2003.

But those staggering numbers are somewhat deceptive.

Overall spending on home video is up a far more modest 4.9%, with the increases in DVD purchases just slightly more than offsetting the near-implosion of the VHS market–the overall $1.7 billion representing just slightly more than half of its position a year ago–and the sudden and severe decline in the rental market. Overall rentals are down more than 15% for the year, now less than a third of the overall market.

Among the highs, lows and surprises in the first half:

• Buena Vista’s DVD premiere movie The Lion King 1½ is one of the top moneymakers of the year with $156 million, and is by far the most profitable.

• Buena Vista’s performance in turning four middling box-office performers in the range of $58 million to $85 million each–Open Range, Kill Bill Vol. 1, Haunted Mansion and Brother Bear–into four $100 million-plus videos, bodes well for the studio’s second half line-up of even more lackluster theatricals like The Alamo, Hidalgo, Home on the Range and Around the World in 80 Days.

• Paramount pulled off one of the biggest surprises with its release of the Comedy Central TV series Chappelle’s Show, which surpassed Family Guy, Friends and Sex and the City to become the top-selling TV title of the year with $43.5 million.

• The difference between market share leader Warner Home Video and Buena Vista was the $205 million spent on the New Line release, distributed by Warner, The Lord of the Rings: The Return of the King.

• Columbia TriStar rode five of the top 20 moneymakers to a fractional lead over Universal Studios Home Video, which had only three of the top 20.

• Universal’s strategy of releasing animated DVD premiere programs tied to the studio’s summer theatrical tentpoles fell apart when Van Helsing and The Chronicles of Riddick didn’t exactly hold up the tent. Van Helsing: London Assignment only sold a couple hundred thousand copies, and the animated Riddick fared even less well.

USHV president Craig Kornblau remains optimistic noting that the studio’s DVD sales revenue was up more than 35% despite DreamWorks’ 65% revenue decline.

It’s premature to throw in the towel just yet on the VHS or the rental market, Kornblau said but noted only 8% of videos purchased are on VHS with just 33% of the rental market clinging to VHS.

Kornblau’s partner Kelley Avery, head of DreamWorks worldwide, has also been a die-hard VHS loyalist. She says her company recently conducted a survey that shows that renters are more satisfied than ever with the selection of titles. But she noted that renters are doing more buying these days.

As for DreamWorks’ disappointing first half, Avery says they were pleased with sales of more than 2 million copies of a repromotion of the original Shrek, and she is looking forward to a second half filled with many more releases.

Fox president Mike Dunn says the continuing decline in retail prices kept consumer spending lower than it might have been.

After a year in which Fox was one of the leaders in the TV on DVD boom, the studio’s market share in that area declined as a flood of competitors jumped into the category, which Dunn projects will grow to $1.5 billion this year. Nonetheless, Fox leveraged its two top ten titles–Cheaper by the Dozen and Master and Commander–into modest increases in both revenue and market share for the first half.

Lions Gate president Steve Beeks is pleased that the merging of Artisan into the company early this year wasn’t a distraction. Although revenue was slightly down from the combined revenue of the two companies a year ago, Lions Gate is steadily increasing its sales of theatrical releases like The Cooler and Girl With a Pearl Earring, DVD premiere movies like Cabin Fever and House of the Dead, and TV programs such as Providence and The Reagans.

Beeks believes DVD sales of all categories of programming is important because he predicts that VHS will account for only about 5% of overall sales on any given title by the end of the year.

He thinks the rental market will eventually level out to a steady pace but not until more than a year of continued declines.

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