West Europe DVD market in euro & sense. (Market Research).

Western Europeans are spending record amounts of money on video software, according to a just-released study by U.K.-based Screen Digest. By the end of this year, spending will hit 11.1 billion euro, rising to 18.4 billion euro by 2006.

Sales of VHS tapes in Western Europe are expected to fall six percent in volume in 2002. However, record-breaking DVD sales and rentals are making up for the decline in VHS spending. According to the study, titled "European Video: Market Assessment & Forecasts 2001-2006," Western European consumers will spend 5.2 billion euro in DVD software in 2002. The report also predicts that volume sales of DVD software in Western Europe will overtake VHS in 2003. However, it is expected to take longer for the digital format to claim supremacy of rental. DVD rental will not generate significantly more transactions than VHS until 2005. Spending on DVD software is forecast to increase by more than 150 percent between 2002 and 2006 to 15.3 billion or 85 percent of total spending on video software.

"The availability of affordably priced DVD Video players across most European markets has been a major factor in consumers' rapid take-up of DVD", said the author of the report, analyst John Miller. "By 2003, almost 50 million Western European house holds will have acquired at least one stand alone DVD player. We expect this will increase to more than 100 million households by 2006, a penetration rate of 62 percent of the territory's television households."

With the growing number of other TV-based DVD platforms, such as video game consoles and DVD recorders, included in the mix, Europe's total number of DVD-equipped homes becomes significantly larger. By the end of 2006, DVD consoles and recorders will have added almost 25 million new DVD-equipped households to the 100 million DVD stand-alones forecast for the same time. By 2006, 77 percent of Western Europe's television households will own at least one TV-based machine capable of playing DVDs. The digital format will have achieved the same level of TV household penetration -- in eight years since its launch -- that the VCR took more than 20 years to achieve.

While consumers are readily switching to the new digital format, Screen Digest does not foresee the complete demise of the VHS business -- as many suggest. VHS will still represent an important business in 2006, generating upwards of 3 billion euro in rental and retail spending.

According to Miller, "the best way to measure the take up of the format is to look at its penetration (the number of VCR or DVD homes in proportion to the number of homes with a television). An example: Germany is a huge market in European terms (39 million TV homes). As a result, there were more DVD player homes in Germany than any other European market by the end of 2001 (3.1 million homes)."

But the penetration figures and DVD purchases per household figures tell a different story. At 8 percent at the end of 2001, German levels of DVD player penetration were lower than major markets like France (12 percent) and the U.K. (12 percent). More significantly, it was way under that of the much smaller Swiss market (11.3 percent).

DVD software purchases per household figures paint a similar picture. In 2001, each German DVD player household bought, on average, six discs, compared with 12 in Switzerland. The conclusion is that the purchase activity of DVD consumers differs greatly across the European markets and it is not always the largest markets where consumers are most active, Switzerland being a prime example.

Prices for DVD software vary around Europe, as did the average consumer price for a retail VHS tape in 2001, which ranged from 29 euro in Iceland and 27 euro in France (the most expensive) to 20 euro in Spain and 17 euro in Poland (the cheapest).

Video rental transactions (VHS&DVD)

            Ranked by 2001 value
          2000         2001
           (m)          (m)

UK        200.0        216.6
Germany   131.2        134.8
Spain      90.2         91.2
France     70.0         79.1
Italy      52.3         55.4

Source: Screen Digest

Retail video units sold (VHS&DVD)

            Ranked by 2001 value
          2000         2001
           (m)          (m)

UK        113.6        134.5
France     67.5         76.9
Germany    44.0         50.6
Italy      31.6         35.0
Spain      17.0         19.5

Source: Screen Digest