VIDEO VITALITY : DISNEY LEADS CHARGE OF STUDIOS VYING IN HOME-TAPE MARKET.

Byline: Dave McNary Daily News Staff Writer

Rick Manly is the ideal customer for Walt Disney's home videos. He has two children, ages 8 and 11, lives in a middle-class neighborhood in Altadena and already owns one of the more than 20 million copies of ``Toy Story'' the entertainment giant expects to sell by Christmas.

``If I hadn't bought it, I would have heard about it every day between now and Christmas about how all their friends have `Toy Story,' so why don't we?'' says Manly, 43. ``I admit that I'm not above buying my children's affections.''

Manly felt the obligation to pay the $26.99 despite the fact that Disney's videos already occupy more than a yard of shelf space at his home with all the blockbusters - ``The Lion King,'' ``Aladdin,'' ``Beauty and the Beast,'' ``Snow White and the Seven Dwarfs'' - along with plenty of Winnie the Pooh and Muppets titles and both direct-to-video ``Aladdin'' sequels.

``The tapes are great baby sitters,'' Manly says. ``Since it's from Disney, the kids aren't going to be shocked by what they see and they're not going to wake up with nightmares. And I don't mind watching something like `Aladdin' again. It really is that good.''

Kathy Shermis of Woodland Hills and her 5-year-old son, Julian, are also ``Toy Story'' owners. ``My son knows all of Buzz Lightyear's lines because he watches `Toy Story' four times a day,'' she says. ``His favorite is `Buzz Lightyear to the rescue.' ''

The competition for customers like Manly and Shermis is intense since studios rely on home video sales for well over half of their overall domestic revenues. The market for buying videos, or ``sell-through,'' represents nearly half of 1996's projected $15.8 billion and should top revenues from rental fees by 1999, according to Adams Media Research of Carmel Valley, Calif.

Four years ago, the sell-through market amounted to $3 billion. By comparison, the domestic box office has remained relatively stable at slightly over $5 billion annually during that time and is expected to set a record this year with about $5.5 billion in ticket sales.

Analysts believe the sell-through market can continue to post nearly 10 percent annual growth for several more years while the overall business hits nearly $20 billion by 2000.

``Sell-through will continue to be the driver for the home-video market,'' said Scott Barry, a research analyst with brokerage Raymond James & Co., of Fort Lauderdale, Fla.

Not every parent is planning to buy ``Toy Story.'' ``The kid next door in the movie is a little too violent and we're more inclined to buy something like a CD-ROM with an educational focus,'' said Mike Cole, a North Hollywood father of an 8-year-old daughter and a 2-year-old son. ``The children only get videos when people give them to us as gifts.''

Barry said competition from newcomers such as personal computers, satellite broadcasting and cable pay-per-view eventually could slow down the home video growth but not for a few more years. Overall growth, including rentals, will be in the 2 percent to 6 percent range, he said.

Steve Feldstein, a Fox vice president, said studios are looking to continue expanding the number of retail outlets for sell-through in the coming years.

``I think people in all sectors of retail are having a very positive experience with sell-through,'' he said. ``The market is by no means saturated.''

Lynn Duncan, vice president of video for the Wherehouse chain, is similarly upbeat.

``The market for sell-through is definitely moving toward more sales even though we are seeing a lot more titles; people are buying two at a time instead of one,'' Duncan said. ``I don't think we've hit a wall, so I'm not worried.''

Success at the domestic box office is the largest factor in how hard a studio pushes a title for the sell-through market, but nothing is taken for granted as new and revamped promotions abound.

Disney has revived its campaign with Burger King for ``Toy Story'' toys to build awareness of the home-video campaign and Universal recently launched a six-week tour of a 40-foot-high balloon of Sherman Klump, the title character played by Eddie Murphy in ``The Nutty Professor.'' Warner Bros. lined up FujiFilm, Tropicana and the Federal Emergency Management Agency as tie-in sponsors for ``Twister.'' And New Line cross-promoted ``The Adventures of Pinocchio'' with Hormel Foods, TCBY desserts, IBM and Scholastic magazine and set up a World Wide Web site, even though the movie was a bust at the box office.

The leading contender to ``Toy Story'' is 20th Century Fox's blockbuster ``Independence Day,'' only the sixth film to top $300 million in domestic grosses. Third place will go to ``Twister,'' which went on sale in early October and has met expectations of nearly 10 million.

In addition, Disney has been releasing sell-through titles at an impressive pace of one a month, competing against itself on ``Toy Story'' with a trio of new entries - ``James and the Giant Peach,'' ``Oliver and Company'' and the direct-to-video ``Aladdin and the King of Thieves.''

``Toy Story'' and ``Independence Day'' will dominate, everyone agrees. Disney announced last month that it had received orders for 21 million tapes; Fox announced a few days ago that retailers had given it orders for 21.95 million copies; and both proclaimed that their tape duplication facilities were working around the clock to meet demand.

``I'm not worried about either one,'' Duncan said. ```The Nutty Professor' is doing much better than everyone thought it would and `Twister' did very well, partly because it beat everyone out of the gate.''

Studios do not give out sales figures and trade groups say it is impossible to reach an exact figure because tapes are sold in so many different locations, such as pharmacies and truck stops, but trackers expect ``Toy Story'' and ``Independence Day'' to sell more than 20 million copies each - a solid performance, representing combined sales of about $1 billion.

Partly because of increased competition, that is nowhere near the record-setting level of 30 million from ``The Lion King'' two years ago. But Barry said topping 20 million in unit sales is no disappointment for either studio.

``Even if they don't sound remarkable, those are big numbers,'' he said.

For studios, the growth of videos sales has enabled them to cope with sharply escalating costs that have driven the average costs of production and marketing, now estimated to average about $55 million per film.

Trackers say the average cost to duplicate a home video is about $4 and stores usually pay $12 for a major sell-through release. Stores pay between $65 and $75 for a tape for use in the rental market.

Studios usually will release sell-through tapes of any title with potential in the family market even if its box office performance was not particularly impressive, such as Universal's ``Flipper'', but will hesitate going directly to sell-through on mainstream titles unless they were hits.

For example, Warner had been expected to offer Arnold Schwarzenegger's ``Eraser'' for sell-through during the holiday season but decided to go the rental route first despite having $100 million in domestic grosses this summer. It also waited until earlier this month to release MGM's ``Goldeneye,'' another $100 million entry that was first in theaters a year ago.

Theater chains have complained that studios are rushing videos too quickly to market, narrowing the window between theatrical release and video release to as little as four months. But studios say they need to take advantage of the economics of the market, since most hits come out in the summer and the biggest period for video purchases is in the fall and winter.

Studios are likely to boost the number of sell-through releases in coming years because the popularity of collecting videos is growing, according to Bruce Apar, editor of New York-based Video Business Magazine. As evidence, he cites the surprisingly strong sales of ``The Nutty Professor'' despite it not being in the two major categories of family film or action-thriller.

``Frankly, I think sell-through is just hitting its stride, because we're becoming more and more of a visual culture,'' Apar said. ``We're seeing more of people's discretionary income going to videos from records.''

For most of the 1990s, Disney has been the dominant force in home video as it pioneered the idea of sell-through. Paramount was the first to try with ``Star Trek: The Wrath of Kahn'' by putting it on sale for $39.95 in 1983, or about half what had usually been charged, but Disney was the first to commit to the idea. With its vast library of animated films, Disney dominated the business by aggressively marketing to parents who discovered that children would be happy watching the same movie a dozen times.

The culmination of Disney's efforts came a year ago when home video revenues topped $2 billion, according to Adams Media Research, accounting for one in six of every dollar Disney took in in the fiscal year ended Sept. 30, 1995, due largely to the record-setting performance of ``The Lion King'' and ``Snow White'' home videos.

Disney will be barreling ahead next year with three new titles in the first three months: ``The Hunchback of Notre Dame,'' a re-release of ``Bambi'' and its first direct-to-video live-action movie, ``Honey, We Shrunk Ourselves.''

Although rival studio executives grumble that Disney is creating a product glut, Apar disagrees, saying Disney is merely taking advantage of a market it largely created. ``Every title Disney releases has the additional benefit of its trademark,'' he said. ``It's certainly worked in the past for them.''

Although its major entries this year - ``Pocahontas'' with about 14 million and ``Toy Story'' - won't match the 1995 results, the video operation remains among Disney's most profitable. The probable success of the live-action version of its ``101 Dalmatians,'' due out Wednesday, is likely to make the home video a must-have item a year from now, when it is a near-certainty to be part of another massive marketing push.

``You can't go anywhere without seeing the Dalmatians shirts and plush toys,'' Shermis said. ``I'm sure I'll buy the video.''

TOP SELLING VIDEOS:

Title, studio, year of release, estimated units sold, domestic box office

1. ``The Lion King,'' Disney, 1995, 30 million..

2. ``Snow White and the Seven Dwarfs,'' Disney, 1995, 25.5 million.

3. ``Aladdin,'' Disney, 1993, 24 million.

4. ``Beauty and the Beast,'' 1992, 22 million.

5. ``Jurassic Park,'' Universal, 1994, 16.5 million.

CURRENT BEST SELLERS

Title, studio, list price, forecast unit sales, domestic box office

1. ``Toy Story,'' Disney, $26.99, 22 million.

2. ``Independence Day,'' 20th Century Fox, $22.98, 21 million.

3. ``Twister,'' Warner Bros., $22.96, 9.5 million.

4. ``The Nutty Professor,'' Universal, $22.98, 8 million.

5. ``Mission: Impossible,'' Paramount, $14.79 (min.), 7 million.

Note: Unit sales and unit sale forecasts are based on analyst and studio estimates.

CAPTION(S):

2 Photos, Box

Photo: (1--Color) No caption (Lion King)

(2--Color) No caption (Characters from ``Toy Story'')

(3) Blockbuster hits like ``Independence Day'' are expected to dominate this year's home video market.

Box: TOP SELLING VIDEOS (See text)