Experts Predict Higher Video Rental Costs, Earlier Releases

The home-video industry, which began the decade as a fledgling with promise, exploded in the mid-’80s into a dominant force in the entertainment scene. Consumers spent more than $11 billion this year, up from $10 billion in 1988, on the sale and rental of videocassettes.

Where is the industry headed in the ‘90s?

Industry analyst Dick Kelly of Cambridge Associates in Stamford, Conn., predicts that VCR penetration (the percentage of TV households with VCRs) could reach 80% sometime in the ‘90s, possibly as early as 1994. Right now, the figure is 66%, which translates into 59.7 million households with one or more VCRs.

“With all those VCRs out there, there will be an even greater demand for prerecorded tapes,” Kelly said. “The companies that supply the product should do very well in the ‘90s.”

Consumers may expect rental prices--particularly in small stores not affiliated with chains--to increase. Paramount and MCA have increased their wholesale prices on rental cassettes (the price video companies charge video stores) and, predicted Paul Culberg, executive vice president and CEO of RCA/Columbia, other companies may follow suit.

“A $2 increase in the wholesale price this year is very possible,” he said. “Part of that increase may be passed on to the consumers in certain situations.”

Inspired by the home-video debut of “Batman” at $24.98 about five months after its theatrical release, studios are looking to bring out cassettes of many major hit movies--those grossing $100 million or more--much sooner than the year or more time delay that characterized the industry in the mid-’80s.

“Now you may see more blockbuster movies at a lower price six to eight months after they’re released (in theaters),” Culberg said.

Culberg cautioned, however, that the early rollout plans might change if consumers don’t gobble up the low-priced blockbusters coming out this winter--”Honey, I Shrunk the Kids,” “Indiana Jones and the Last Crusade” and “Lethal Weapon 2.”

Look for the home video time lag for other films to shrink too. “Movies that come out and vanish after a few weeks may be in video stores as soon as four months after they’re released,” he said. “But for most movies, that six-month window will hold.”

Sales volume is likely to increase, but rentals will still drive the business. “Sales will get stronger and the sales percentage of the business may go up a little every year, but not to the point that sales will overtake rentals,” Culberg said. “Sales will continue to be the backbone of the business.”

Traditionally, the bulk of the business in the home-video market has been rentals. Of the $11 billion consumers spent in home video, said Kelly of Cambridge Associates, $9.3 billion went for rentals; $2 billion for sales.

The emergence of mass merchants--discount stores like Target and K mart--as a primary outlet for prerecorded tapes has been a boon to sales. First of all, these stores are geared sales exclusively. More significantly, they sell tapes at a very low price.

Consequently, home-video manufacturers, anxious to feed this new pipeline, have drastically reduced prices. These days, with the low prices, the consumer is more inclined to buy certain cassettes.