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Videocassette Business Still in Fast-Forward Mode

SPECIAL TO THE TIMES

If 1996 taught anything in the video business, it was not to count out the videocassette. Last January, pundits were writing VHS off in favor of emerging technologies such as a format shaped like an audio CD expected to revolutionize the industry--and the fast-growing satellite dish business.

As it turned out, DVD’s launch stalled over copyright protection issues, satellite dish sales slowed measurably and consumers bought more prerecorded videocassettes than ever before, proving there was still plenty of life left in the VHS format.

“I’m very optimistic about 1997,” said analyst Curt Alexander of Media Group Research in Providence, R.I. “The crash and burn of wireless technology, along with the fact that DBS [satellite TV] business growth has slowed measurably is very good news for cable and, down the road, the video industry.”

With digital versatile disc, or DVD, the year’s big no-show and rental revenue flat, the sell-through side of the business once again commanded the spotlight. By the time the dust settles on the fourth quarter, easily the most competitive ever, analysts expect the sell-through sector--generally defined as tapes priced $29.99 and under--to finish as much as a billion dollars ahead of the $4.6 billion from 1995.

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“There doesn’t seem to be an end in sight to the number of videocassettes people are willing to buy,” said analyst Tom Adams of Adams Media Research in Carmel Valley, Calif. “There is a limit, but we just don’t know where it is yet. The sell-through business has quite a ways to run yet.”

Several trends seem likely to continue this year.

What sticks: With videocassettes being sold at more outlets than ever--from video stores to gas stations, supermarkets and the corner drug store--gleaning accurate sales figures will continue to be a big challenge. The number of units shipped for sale can vary widely from the number of units actually sold at retail, which is why the expression “it’s not what ships, it’s what sticks” has gained vogue among video distribution executives.

“No one cares how much you ship anymore--how much will you sell?” said Kirk Kirkpatrick, sales vice president at WaxWorks, a Kentucky-based distributor.

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Shipping figures will probably remain a prime source of bragging rights within the industry, however--as seen by 20th Century Fox Home Entertainment’s recent maneuvering on behalf of “Independence Day.” Several weeks after archrival Buena Vista Home Video announced “Toy Story” shipped 21 million units, FoxVideo issued a news release calling “Independence Day” the biggest video of the year based on “unprecedented retail orders of 21,954,575 copies,” although studio executives privately admitted the initial number shipped was less than 21 million and that the orders spanned the entire holiday season.

Winners and losers: Jockeying aside, “Toy Story” and “Independence Day” were the big winners of the holiday season, which has become the video equivalent of the summer movie season. “The Nutty Professor” is considered the biggest surprise of the season, probably because expectations were low. “Mission: Impossible” is widely considered a disappointment, despite Paramount Home Video’s protestations to the contrary.

Of the so-called Big 5 of the season--"Toy Story,” “Independence Day,” “Twister,” “The Nutty Professor” and “Mission: Impossible"--only “Mission: Impossible” failed to make VideoScan’s top 10 for the year.

Other perceived failures include “Flipper,” “Muppet Treasure Island” and “James and the Giant Peach,” with the latter two titles falling short of what the industry has come to expect from Disney releases. Tania Moloney, vice president of publicity and marketing for Buena Vista Home Video, contends that “Muppet Treasure Island” and “James and the Giant Peach” had each sold 5 million units before Christmas, though VideoScan figures are considerably lower.

On the plus side, both “The Wizard of Oz” and “The Sound of Music” sold millions of units, despite having aired on TV zillions of times, which bodes well for more major classic re-promotions in the coming year.

Longtime sell-through champ Buena Vista finished the year with 20% of the market, according to VideoScan projections. Warner Home Video, which distributes MGM/Home Video as well as HBO Video, finished a notch below at 18.5%, a few pegs above FoxVideo (12.9%), considered one of the most aggressive sell-through marketers in the business. Universal Studios Home Video, which is expanding its direct-to-video productions markedly this year, finished fourth at 9.8%, followed by Paramount Home Video at 8.4%. Like its theatrical counterpart, Columbia TriStar Home Video continues to lag behind at 6.6%. The now-disbanded Turner Home Entertainment finished farther down the scale at 2.2%.

Promotion dollars rising: Look for more big spending in 1997 as the industry continues to promote more sell-through titles. Last year, there were 33 direct-to-sell-through releases, compared with 27 in 1995, and this year’s sell-through slate is already filling up, with “Space Jam,” “Hunchback of Notre Dame” and “Harriet the Spy” clustered in the spring. FoxVideo President Bob DeLellis said his studio alone “has a shot at four or five going sell-through” in 1997.

“You have to understand something: We are in the packaged goods business,” Universal Studios Executive Vice President Andrew Kairey said. “In the packaged goods business, you have two to three weeks max to sell . . . you’ve got to be prepared to spend money to pull it through.”

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Some feel the go-go sell-through arena prompted overspending during the fourth quarter of 1996. One executive with several major releases during that period admits that in retrospect he would have spent less.

MGM/UA Home Video Executive Vice President David Bishop, who spent $5 million re-promoting “The Wizard of Oz,” doesn’t consider the current level of spending excessive.

“I don’t think it’s overkill,” Bishop said. “You need to create urgency to drive people out of their homes into the store, so I don’t see use of money subsiding in any way.”

Eroding price points: Suppliers also forecast more price compression in the coming year. Traditionally, the sell-through business has operated under a three-tier pricing structure--$19.98, $14.98 and $9.98--with prices sliding lower based on retail exposure. Recently, however, more studios have begun to re-price their product directly to $14.98 in order to compete with the plethora of quality catalog product priced less than $10, a strategy seemingly borne out during the fourth quarter, when videos re-priced for sale at $19.98 struggled.

At Paramount Home Video, one of the first suppliers to regularly bypass the $19.98 price point, each title also continues to be evaluated individually, according to Executive Vice President Jack Kanne.

“It’s really title driven, but I will say, looking at our title slate for the upcoming year, that we’ll probably re-price every major title to $14.95,” Kanne said.

As for DVD, it will probably make it to stores this year, but don’t expect it to force major change in video retailing soon.

“Even if it’s as big a launch as boosters hope it will be, it won’t cut into VHS sales this year--our models show some cannibalization, but not much,” said analyst Adams. “We’re on the brink of major change as we move into digital technology, but what we’ve seen with DBS and DVD is media companies shouldn’t be making their business plans based on it happening overnight. It’s going to take awhile.”

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Video Vigor

The video business is continuing to sizzle, roughly doubling in size over the last five years. Although many analysts have been predicting that video sales would begin to plateau because of competition from satellite television and soon-to-be-introduced DVD technology, the video business is expected to continue growing strongly in 1997.

TOTAL REVENUE

Revenue to suppliers, including rental and sell-through sales, in billions:

1997: $9.48

Note: 1996 figure is an estimate; 1997 figure is a projection.

VIDEO PRICES

under $10: 18.1%

$10-$13: 6.5%

$13-$15: 22.5%

$15-$20: 24.2%

$20-$25: 16.7%

$25-$30: 7.5%

over $30: 4.5%

MARKET SHARE

Top 10 distributors based on 1996 market share:

Company / Share

Disney: 19.99%

Warner Home Video: 18.46

Fox: 12.93

Universal Studios: 9.79

Paramount Home Video: 8.39

Columbia: 6.58

Anchor Bay: 2.51

Turner Home Entertainment: 2.21

Sony/Sony Wonder: 2.00

Lyon’s Group: 1.81

TOP VIDEOS

Top 10 videos of 1996, ranked by sales:

Movie / Distributor

“Toy Story” / Disney

“Babe” / Universal

“Independence Day” / Fox

“Pocahontas” / Disney

“Twister” / Warner

“The Aristocats” / Disney

“The Nutty Professor” / Universal

“Jumanji” / Columbia

” Winnie the Pooh” / Disney

“Oliver & Company” / Disney

Sources: VideoScan; revenue figures supplied by Adams Media Research


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