DVD RENT REVENUE DOUBLES VCRS AND PRERECORDED VHS TAPES CONTINUE TO SELL.

Byline: Greg Hernandez Staff Writer

The thriving $20 billion home-entertainment industry is being driven by the DVD revolution, a steadily-growing video-game market and remaining demand for the VCR despite its being tagged a dying format, according to information compiled by the Video Software Dealers Association.

In its 2003 annual report on the home entertainment industry, released this week, the dealer group's leaders analyzed upcoming challenges and opportunities for the industry in addition to supplying facts and figures on sales and rentals of DVDs, traditional VHS tapes and console video games.

DVD gets the bulk of the credit for giving the industry a much-needed boost since its debut six years ago. By the end of last year, 39 million households had DVD players, and spending on DVD rentals had doubled to $2.9 billion.

``The basic driver of the growth of home video is the melding of the high-tech and portable DVD with the best entertainment in the world,'' said the group president, Bo Andersen.

The report notes that the DVD rental business has been led by Blockbuster, the largest video chain in the U.S., for the last two years. But online DVD rental services are increasing. With Netflix showing the way - allowing consumers to rent DVDs online and receive and return them by mail - nearly two-dozen such businesses are now in operation.

This trend has prompted video giants Wal-Mart and Blockbuster to launch their own online rental services.

``It will be interesting over the next few years to see how many of these strictly online services grow and prosper, and how many brick and mortar (stores) will offer that as an alternative,'' said Carrie Dieterich, vice president of marketing and industry relations for the video software dealers.

``There's a core group that will find it very convenient, but there will still be a lot of people who decide to rent spur of the moment, and online doesn't make sense for them,'' Dieterich added.

While most of the focus in home entertainment has been on DVD in recent years, the report states that sales of VHS tapes and VCRs continue to grow.

Household penetration of VCRs actually rose by almost 4 million last year - up to 97 million homes. Consumers also spent $3.4 billion buying prerecorded tapes and rented an average of 5.5 videocassettes per month.

While several major film studios are no longer releasing some of their newer film titles on VHS tapes for retail sale, the software dealer group predicts that the prerecorded VHS will not disappear but will instead evolve into a niche product.

``People still replace their VCR if something breaks, and 50 percent of households don't yet have a DVD player,'' Dieterich said. ``People also still have valued VHS libraries.''

But it is the sale of DVD titles that is clearly the new dominant force in the industry. The report states that the $8.7 billion in DVD sales last year is greater than the combined rental revenue for both DVDs and VHS tapes.

The dealer group, based in Encino, is a nonprofit trade association that represents more than 1,500 companies in the United States, Canada and a dozen other countries. Members include the home video divisions of major and independent movie studios and video retailers ranging from single-store operators to large chains.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com

CAPTION(S):

box

Box:

DVD'S BIG PICTURE

SOURCE: Video Software Dealers Association