FILM INDUSTRY RELYING ON BUYER'S MARKET

Movie viewers have been increasingly favoring a seat on the couch and remote-control-driven special features over the silver-screen experience, a recent poll suggests.Americans are spending more money on home video, with annual consumer spending increasing 5% in 2004 to an average of $248 per person, according to marketing reports from the Motion Picture Association of America, Washington. In addition,

Movie viewers have been increasingly favoring a seat on the couch and remote-control-driven special features over the silver-screen experience, a recent poll suggests.

Americans are spending more money on home video, with annual consumer spending increasing 5% in 2004 to an average of $248 per person, according to marketing reports from the Motion Picture Association of America, Washington. In addition, nearly 75% of those polled said they prefer to watch movies at home rather than in a theater, according to a poll conducted by Ipsos for The Associated Press and AOL News. The poll surveyed 1,000 adults and had a 3% margin of error.

The numbers suggest DVD sales are the moneymaker of the entertainment industry. And while customers are demanding, and getting, more video rental and purchase options, some suppliers and retailers are diversifying their approaches to include home video to compete in a market where convenience is the key to bottom-line success.

"Just as many nontraditional food retailers continue to enter the food arena and make their food presence known, retailers in the video arena continue to experience increasing competition from existing and nontraditional video retailers," said Doug Roe, entertainment category manager for Giant Eagle, Pittsburgh. "Customers can now perform their video renting and purchasing functions at a variety of retail venues, which is driving retailers to differentiate their video shopping experience and overall video value proposition."

Examples of differentiation include offering promotions or sweepstakes, extending rental periods, reducing or eliminating late fees and using other convenience-oriented rental methods, Roe said. But even with these efforts, rentals were down slightly at Giant Eagle last year.

Amy Jo Smith, executive director of DEG: Digital Entertainment Group, Los Angeles, said numbers reflect that Americans are buying rather than renting videos.

"Product is offered at prices that are encouraging people to collect the product rather than rent it," Smith said. "That's only good news because the prices are affordable, and it allows supermarkets to carry [the product]. DVD is a great purchase for any kind of impulse, whether it's a rental transaction or a purchase, and the supermarket is a great place to do this."

Though brick-and-mortar video rental sales are slipping slightly, retailers are adjusting their marketing techniques and product offerings to stay in tune with changing consumer demands.

"Sell-through continues to grow, especially budget sell-through," said Greg Rediske, president of Video Management Co., Tacoma, Wash. "Rentals have been and will probably continue to be relatively flat. I don't expect a lot of increases there, with the various other alternatives like Netflix."

In response to these trends, Rediske predicted stores would expand their budget sell-through space. He pointed to high sell-through and higher margins on budget DVDs as incentive for retailers to carry more. He also expects retailers to reduce or phase out VHS offerings.

As traditional home video stores shift the focus from rental to sell-through, nontraditional video operations continue to see rising rental revenue.

"We see good growth," said Steve Swasey, director of corporate communications at Netflix, Los Gatos, Calif. Netflix anticipates gaining 1 million customers within a year's time for a total of more than 4 million customers. "We think there's still tremendous growth available to Netflix and to the DVD rental industry. We're not the only player in the game, and our competition has also shown some growth, so we think it's an overall-growth category."

The company began an agreement with Wal-Mart.com in May after the site announced plans to discontinue its own rental service. Netflix promotes Wal-Mart's low-priced DVDs on its site in exchange for Wal-Mart offering its rental customers special, promotional prices to switch to Netflix.

When asked if Netflix has plans to make promotional agreements with other video retailers, Swasey declined to speculate.

In reaction to this agreement, Blockbuster, Dallas, offered Wal-Mart and Netflix customers two free months of service and a free DVD from one of its stores.

Traditional rental operations are also continuing to research new ways of maximizing home video profit. Supermarket retailers with video offerings are trying to enliven their video shopping experience, Roe said. "Some examples are unique promotions or sweepstakes, longer rental periods, reduction and/or elimination of late fees and other convenience-oriented rental methods. In January, we made the decision to move to a seven-week rental period for all movie rentals regardless of title to provide our customers with a more convenient rental experience."

To succeed in the home video sector, retailers are staying flexible. Giant Eagle is testing a variety of video retailing concepts, including sell-through-only departments and expanding DVD merchandising into the body of the store to accommodate the lifestyles and interests of its customers, Roe said.