Consumer Spending on Home Video Set for a Record Year; Explosive Sales and Rental of DVD Software Fuels 11 Percent Growth Over 2002.

Entertainment Editors

SANTA ANA, Calif.--(BUSINESS WIRE)--July 29, 2003

Fueled by soaring demand for DVD, consumer spending on home video software for 2003 is on track to set a new record, $23.3 billion -- up 11 percent from 2002. That's the first time in seven years that video spending will post double-digit gains.

"DVD has not only reinvigorated home video, but also given Hollywood a hot new consumer product that people just can't wait to get their hands on," said Video Store Magazine Publisher Don Rosenberg.

According to Video Store Magazine's market research director Judith McCourt, who issued the forecast, consumers by year's end will have spent $14 billion on DVDs and videocassettes, the lion's share (88 percent) coming from DVD sales. Consumer spending on DVD purchases in 2003 ($12.2 billion) is expected to narrowly beat consumer spending on the entire video category in 2002 ($12.1 billion, of which $8.7 billion was DVD).

"DVD has gotten consumers to do something they never really did with VHS-build libraries and collect their favorites to truly give them video on demand," Rosenberg said. Rental spending, meanwhile, is also expected to rise, to $9.4 billion, from $8.9 billion last year -- a gain of 5.6 percent. For the first time, consumers will spend more on renting DVDs ($5.1 billion) than on VHS ($4.3 billion).

"DVD was always positioned as something to buy and collect, from day one," Rosenberg said. "So it isn't surprising that DVD began to dominate sales, early on. But now that DVD leads in rentals as well, it's safe to say DVD has gone mainstream."

Indeed, according to DVD Entertainment Group estimates, DVD players will be in 55 million U.S. households by the end of this year, for a penetration rate of more than 50 percent. Factor in the other non-dedicated DVD playback devices, from computer DVD-ROM drives to game units like the Sony PlayStation 2, and some 100 million U.S. households will be able to watch DVDs.

DVD now dominates the video sections at mass merchants like Wal-Mart and Target Stores, just as it's done for years in consumer electronics chains like Best Buy and Circuit City, which cater to the "early adopter" demographic. This demographic tends to be young and male and more likely to try a new technology as soon as it hits the market.

The VHS videocassette importance in the market continues to decline. According to Video Store Magazine's market research, cassette sales this year are on track to clock in at $1.8 billion, down a steep 47 percent from last year. VHS rentals, meanwhile, are expected to finish at $4.3 billion, down from $5.7 billion in 2002.

Video Store Magazine is the leading trade publication serving the home entertainment industry. It is published by Advanstar Communications, one of the top publishing and trade show concerns in the country.

Video Store Magazine has a full-service market research department that provides data, analysis and charts to the Hollywood studios, the federal government (as an input into the GDP estimates) and a wide array of media sources, from USA Today and the Los Angeles Times to the Hollywood Reporter and the Internet Movie Database (imdb.com), both of which publish the magazine's weekly rental charts.