Curtain Call

s retail watching the final act of the video business?

According to a number of marketing officials at the various movie studios, nothing could be further from the truth. The introduction of the DVD format, as well as aggressive marketing and advertising by the studios, promises to keep the video category in fine form for a number of years, they say. Rental and sell-through sales are near industry highs.

But increasing competition for the consumer's entertainment dollar—most notably from satellite TV, the theater itself and the Internet—is playing a role in future decisions by retailers to expand their video and DVD departments.

A number of retailers have said that they will take a wait-and-see approach to the video category, refusing to give the section more space in their stores despite pleas from the studios for more room and awareness at store level.

"Retailers have one eye on their cash register sales and another on what they see as future trends when it comes to video and DVD," says one industry observer. "They are concerned that this is a category that could change dramatically in a short period of time and they could miss the boat."

Suppliers are not worried. Noting that VHS sales continue to grow by about 8 to 10 percent annually and DVD sales are booming by more than double that rate, many studio executives paint a rosy picture for the overall category. The bottom line, many say, is that there are more than 100 million working VCRs in the country and people want the opportunity to watch a tape on these machines at their convenience.

Kelly Sooter, head of domestic home video at Glendale, CA-based DreamWorks, says as far as the overall VHS business goes, "it is truly a healthy category and it's really where the mainstay of the business is. It is the way the vast majority of consumers view movies over any other type of entertainment format, whether it's theatrical or pay-per-view or DVD. VHS is truly the core of the business."

Mark Horak, senior vice president of marketing for Burbank, CA-based Warner Home Video, agrees, stating that the base business of VHS sell-through is "showing remarkable strength and continues to do well. This year is off to a good start. Our catalog continues to do very well and reaffirms consumers' interest in building home libraries."

Still, the advent of satellite dishes and on-demand movies is making the studios work a little harder with their prerecorded operations. Many suppliers say that they now have to offer more promotional support for newly released titles as well as continue to reintroduce titles to their catalog libraries.

Retailers, also, are turning up the heat to keep consumers interested in renting from their stores. "Look at Blockbuster," says one industry observer. "They are now offering five-day video rentals. Other retailers are trying to take the burden away from the consumer to meet a deadline on returns. Video, like so much else, is all about convenience and the consumer does not like the idea of returning a title within 24 hours."

Sell-through may be the studio's long-term salvation. As any parent with a 5-year-old knows, children love to watch the same movie over and over again. That bodes well for the sell-through market, particularly the children's end of the business.

Yet, it may all come down to pricing. Consumers have long complained about high price points for certain popular titles, an issue that suppliers have begun to address in the last year. "The industry is trying to keep price points under $20," says one executive. "That seems to be the magic number."

The introduction of the DVD format is certainly helping retailers. DVD is experiencing the fastest penetration of any consumer electronic item in history. "It's taken off faster than anyone's anticipated to become a considerable component of the category," says Robert Wittenberg, senior vice president of sales at Santa Monica, CA-based MGM Home Entertainment.

At the mass level, particularly, Wittenberg says DVD has taken flight very fast, increasing its floor space every week. Though he admits that shrink is a concern, he sees blue sky for the aggregate business. He does anticipate a corresponding drop in VHS sales eventually, but how much of that drop-off is attributable to DVD is hard to tell, he says.

The DVD segment "continues to amaze everyone involved, exceeding everyone's projections," Horak says. And it's not just the hardware going into homes. For the 6 million homes in the U.S. that now have DVD players, Horak points out that there is a huge appetite for movies to play on the new machines.

In fact, according to Amy Jo Donner, executive director of the Los Angeles-based DVD Entertainment Group, DVD penetration will reach 12 million units in North America by the end of the year, maybe as high as 15 million.

"Consumers are buying four times as many movies on DVD as a normal VHS household," says Horak. And, the beauty of it all, he says, is that some of the DVD business seems to be incremental to the base VHS business.

"We're seeing that the retailers who are providing a balanced product selection and merchandising strategy across VHS and DVD are getting the most growth out of the prerecorded movie category," he says.

Matt Lasorsa, senior vice president of marketing for Los Angeles-based New Line Home Video, says that as retailers give more space to the DVD category, there will be a natural shift in sales. However, he says the net of that could still be incremental numbers "because it provides another format for someone to enjoy." He projects growth in both formats "due to the compatibility of both formats being able to coexist, even though we expect DVD to become a larger percentage of the total."

Sooter says DreamWorks has released every title on DVD that it has put out on video. "Going forward, we make every attempt to go day-and-date with our VHS releases," she says. "You'll see that as a practice moving forward. We don't have a catalog business quite the same as other studios, but we have a good stable. We have some great properties, like Saving Private Ryan, that will be evergreen titles year after year and will continue to do a significant amount of volume on DVD."

And what about competition from other forms of delivery? For the long-term, Horak thinks DVD can compete in a world of digital broadcast delivery of movies. He cites three reasons: the consumer owns it forever so therefore is not limited to a programming schedule, the DVD product offers extra content and value-added features, and prices are coming down, making them affordable to collectors.

He also believes that the studios are at an advantage in getting first to market. "This is a great opportunity for us to establish the DVD package business before the development of alternative distribution models," he says.

Wittenberg forecasts that on-demand television will "definitely impact sales of video," but, he says, the effects will show up more on the rental side than on the sell-through end. He adds that though on-demand television offers a more convenient delivery, availability is "farther down the road than some are willing to admit."

Based on industry projections, Lasorsa believes that in three years we'll see a 50-50 split between VHS and DVD. "In addition to the 12 million players forecast to be in homes by the end of the year, SONY PlayStation is coming out with DVD drives, which will open up DVD to a younger demographic," he says, adding, "We're seeing kids going off to college with a computer equipped with DVD-ROM drives. So the access beyond the 12 million number DVD player penetration is going to grow enormously."

Donald Evans, executive director of marketing and promotion at New Line, points out that DVD is "like a revolution in our division of the entertainment industry because we really can reinvent movies for the home entertainment format. It allows us to not only transfer the movie at a quality level that's never been experienced before in the home, but also add supplemental material that enriches the home-viewing experience."

As more new technologies come along, Evans says the studios can do more unique things. "With the number of PCs equipped with DVD-ROM features, we really have an opportunity to expand upon the young market who are used to watching and playing with movies on their computers or soon-to-be home entertainment consoles like PlayStation 2," he says. "Twenty percent of our DVDs are being used in a computer. We want to develop convergent content that's compelling to users when they're using DVD on computers."

Evans believes that adding the right type of extra content can really make a difference. "Do I think a consumer is going to go out and buy a DVD based solely on the extra content? Probably not, but if they're borderline or if they like the movie, some of this extra content can really push them over."

The beauty of DVD, he says, is that if it's done fiscally responsibly it doesn't need to break the studio's bank. A hundred different things can be added and each user can find something in it that they like. "The majority of people might just want to watch the movie, but if it's done in a cost-effective way, put it on there and you have a broader market. We create a lot of niche elements for our DVDs, whether it's the isolated score with commentary or the deleted material, and if you add up five or six niches you get mass. That's the key. DVD allows you to target various demographics on one product and everyone can then be happy. It becomes a mass product and a successful product to the masses."

Martin Blythe, vice president, publicity for Hollywood, CA-based Paramount Pictures, agrees, saying that with the PlayStation 2 as well as the fall shopping season approaching, he expects a broader audience to get into DVD. It's not just the special features DVDs offer that are bringing people into the market, he says, it's also the "sheer pleasure people get from building home entertainment systems."



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For its August 29 release of Braveheart, which Blythe says is the third most requested DVD title on Amazon.com, Paramount will be embellishing the release with a Mel Gibson commentary and bonus features. "Some movies lend themselves very well to DVD," he adds.

Paramount is also releasing Blue's Big Musical Movie, the first feature-length direct-to-video title in the popular Blue's Clues series.

Other studios are drawing from their catalogs. MGM has a vast film library from which to draw titles for release on VHS and DVD. This year, Wittenberg says, the studio is releasing 150 films to DVD. Next year, the schedule calls for 425 releases from the library as well as 25 new titles. All of these will be issued in the DVD format with only some released in VHS.

Following its release in May of the James Bond film, The World is Not Enough, along with five more Bond titles, the studio is following up with The Sixth Sense. For the summer and early fall, the studio is making available for $19.98 each: Platoon, Fargo, Kalifornia and Six Degrees of Separation.

Other movie studios are re-releasing the best movies from their catalog on the DVD format and many are pricing them in the $20 to $25 range.

DreamWorks was "incredibly successful" last year, says Sooter. "We had a great slate of products—with Saving Private Ryan and Prince of Egypt—and we're looking to pass that this fourth quarter." The studio just launched Galaxy Quest. "It's doing really well for us, which speaks to the family market. We see the family market becoming a much bigger market within the DVD category," Sooter says.

DreamWorks will be releasing American Beauty as well as Eldorado and Joseph, a prequel to Prince of Egypt, its first direct-to-video movie. "We are anticipating a few extra titles dropping in sometime between now and the fourth quarter based on our theatrical schedule," Sooter adds.

John Reina, vice president, domestic sales, sell-through at Culver City, CA-based Columbia Tristar, says that, on average, the studio is releasing 12 to 15 not-available-before titles a month from its catalog on VHS, and with 1,500 titles in its vaults that have not been released to the prerecorded market, the studio has quite a well from which to draw. The studio has also aquired the Muppet movies—Labyrinth and Dark Crystal, as well as Drowning Mona from Destination studios and Arlington Road from Screen Gems.

"Our catalog sales and our new release day-and-date titles are very strong," says Janet Wheeler, director, sales-DVD for Columbia Tristar. "We released Stuart Little on DVD and VHS and it's done very well for us. We released Dogma in May which has done extremely well for us." She says the studio is releasing on DVD an average of six to eight titles a month and probably the same number of day-and-date, "depending on how things play theatrically."

She adds that the studio re-released Ghostbusters last year and generated a new round of excitement around the DVD release. The visual commentary on the DVD grabbed a whole new group of consumers interested in a 15-year-old title, she says. The studio intends to do the same thing with Men in Black.

"It's a wonderful, wonderful time for retailing," adds Reina. "For the entertainment industry, the retailers are sizzling with DVD software and players. Retailers are selling catalog titles that they've never sold before, and at higher prices."

To push sales, Horak says retailers need to maintain strong displays of new VHS titles, as well as catalog promotions. On the DVD end, he says Warner is using many of the same proven strategies it has used for VHS, including display placement, freestanding merchandisers for hot new releases and top performing catalog titles, as well as aggressive advertising in retailers' circulars for new releases and catalog titles at under $20.

Blythe says Paramount encourages retailers to set up theme shopping environments. "The more retailers bring in Hollywood glamour, the more fun it is to shop brick-and-mortar," he says. This trend is already happening online, but he sees brick-and-mortar responding well to the trend.

Evans at New Line says there's a real need to educate the consumer as to what DVD has to offer and what's special about DVD. In-store demos that are tours of a DVD, that take users through all the features, would be hugely helpful, he suggests, as well as pamphlets that explain what DVD is and what it offers. It's ramping up quickly, he says, "but we could accelerate that growth by educating the consumer quicker."

Reina at Columbia Tristar agrees, adding that his studio uses comparison charts, samplers and conference calls to educate both retailers and consumers. He points out that the job is made easier by a general willingness to learn, owing to the excitement generated by the category. RM