The days of head-over-heels growth of DVDs are drawing to a close.
Business is still brisk to be sure. Video sell-through in fiscal 2005 accounted for more than $16 billion, an increase of 15% over 2004, according to the Video Software Dealers Association, Encino, Calif.
However, DVD collectors' closets are near full, the best and brightest classic movies and TV shows have already been rolled out, America seems less thrilled than ever with what they're finding at their local theaters, and nearly everyone agrees the category is shifting into a more mature phase. Meanwhile, there is uncertainty over the impact of the two competing, and incompatible, new format technologies Blu-ray and HD DVD.
There is also opportunity. Educational and special-interest product, TV shows on DVD, the popularity of discount titles and enhanced studio cooperation in retail-level promotions may help soften the category's maturation in supermarket aisles.
One thing is certain: Supermarkets are going to have to work harder and smarter to keep DVD sales from waning. This will mean more aggressive promotions, more cross merchandising and perhaps even a step up to more expensive DVD collections that heretofore have been considered too expensive.
What exactly does the future hold for video sales in supermarkets?
"At some point it's not going to be 20% a year [sales increases], and it may not be 15% a year," said Russ Crupnick, president of the Music and Movies division of the NPD Group, Port Washington, N.Y. "But if it's something like 5% to 10% a year, then as long as prices stay at a reasonable level, you've got a good business for the studios, the distributors and the retailers. We don't have any evidence that said the house is falling on top of Dorothy," he said, alluding to the movie classic "Wizard of Oz."
"Certainly there has been concern about whether the box office situation will translate directly into video sales," Crupnick noted. "From our perspective, new DVD sales are slowing down after all of that huge growth we've seen in the past few years, but it's not necessarily related to the box office. It's related to people filling up their inventories and collections."
"There is no question that the market is maturing," said Greg Rediske, president, Video Management Co., Tacoma, Wash. "When CDs were first introduced, many [consumers] went out quickly to replace their cassette libraries and were voracious purchasers of all things CD. It's the same with the DVD market. By most accounts, the market has matured more quickly than anticipated. That may have come about by the deluge of product: Who'd of thought every TV show ever lasting more than a season would find a home again?"
"I would probably have to agree with that," said Bob Gettner, video buyer/coordinator, B&R Stores, Lincoln, Neb. "We're not going to see those leaps and bounds increases like we used to. [The DVD market] has hit maturity, and we're not seeing DVD player sales like we did. I mean, they're still there, they're just not huge."
It's clearly going to require more marketing initiative and promotional initiative to maintain share of the DVD category, NPD's Crupnick said. "From a retailer's standpoint, with all the titles out there, it's really about understanding your customer and saying, 'How do we tailor our section so that we can optimize the inventory and the opportunity that we've got? It really is about very smart targeting and merchandising."' In other words, he added, it means a greater emphasis on category management.
"I think that's going to be true for every channel in the marketplace," Crupnick said. "How do we optimize every customer who comes into our video section? That's even more important when things start to slow down," he said.
"Not everybody collects," said Jerilyn Kessel, co-founder, Centris, Santa Monica, Calif., which tracks over 75 communications, entertainment and technology areas at the household level on a daily basis. "The early adopters were collectors. This latest round, say the last 20 million homes that got DVD, they're not really collectors. They rent and they'll buy a few of their favorites, and they will buy for gifts, but that's about it. When you have the choice of buying it for $7.99 or renting it for $3.99, they might very well buy it and then share it with friends.
"It can't hurt supermarkets to carry DVDs, especially when they come in special display boxes, which I've seen at grocery stores. The full-priced ones may not move, but if they have opportunities to sell the lower-priced ones as an impulse buy at the checkout counter, it probably is a good idea," Kessel said.
"This has been the year of TV shows" on DVD, she said. However, "you can only go deep into the vault before you start to reach a certain level of quality that just isn't going to go over. Next year you're going to see an increase in non-theatrical DVDs in special interest areas," she noted.
With 80 million American households able to play a DVD, special interest is going to compete with video-on-demand, she said, "and video-on-demand is having a little bit of trouble.So when producers come up with original content they're going to hit it both ways. They're going to play it on video-on-demand first, where you have a very limited audience of only about 25 million households, and then they're going to put it out on DVD as well. Look what Jane Fonda did with her exercise tapes. That made the special interest VHS market."
