Hollywood Hits It Big Video Sales And Rentals Skyrocketed In ‘98

The nation’s $20 billion home video industry has rebounded impressively from a dismal 1997, easing a major worry for Hollywood studios.

Industry trackers have estimated rentals posted a gain of as much as 10 percent, while sales rose as much as 8 percent. Analysts believe the recovery from 1997’s plunge, which saw more than $1 billion in revenue vanish, is due to addressing the longtime complaint that retail outlets didn’t have enough inventory.

“The industry looks good,” said Barbara McNamara, an Alexander & Associates analyst. “Big chains are doing particularly well because they’re answering customer concerns.”

The top rental for 1998 was Sony’s “As Good as It Gets,” with $64.2 million in revenue, followed by Sony’s “Air Force One” with $61.3 million, according to the Video Software Dealers Association. Paramount’s “Titanic” sold 22 million copies, setting a record for live-action video. Disney’s direct-to-video “The Lion King II: Simba’s Pride” took second with 15 million units sold.

Burbank-based Disney won the title for total rental revenue with $1.6 billion, or 19.8 percent of the market, according to VideoScan. The tracking service also estimated Disney came in first in sales with 19.2 percent as it took the next six slots after “Titanic.”

The improved industry performance is crucial for Hollywood’s bottom line since studios count on videos as the source of half of film profits. Sales of videos, which are heavily discounted at giant retailers such as Wal-Mart and Target, had fallen by as much as 10 percent in 1997.

Although the rebound doesn’t look spectacular, it’s impressive because there’s not much room for expansion. Not only do four out of five American households own a videocassette player, but smaller video stores are closing as well.

“The video business is a mature industry,” said Marvin Roffman of the Philadelphia-based investment firm Roffman Miller Associates. “Like a lot of other industries, you’re going to see more consolidation because it’s difficult for the mom-and-pop operations to compete.”

Industry projections vary widely because videos are sold and rented through more than 100,000 outlets, ranging from block-size entertainment centers to hole-in-the wall liquor stores. VideoScan estimated 1998 rentals rose 10 percent to $8.1 billion; Alexander & Associates calculates they fell 1.9 percent to $11.02 billion. Sales gains estimates range from 4.2 percent to 8 percent.

Analysts agree that the key to the recovery has been the turnaround of Blockbuster, and they point to its “revenue sharing” and “copy depth” strategies. Blockbuster pays studios as little as $5 per tape and splits rental revenues, which cuts per-copy profits but leads to larger inventories of current titles.

The idea was clearly a hit with customers, as Blockbuster’s third-quarter revenue jumped 18 percent at stores open at least a year.

“Blockbuster’s third-quarter numbers were stupendous,” said Thomas Adams, president of Adams Media Research. “Since they have a third of the volume, their numbers are pretty indicative of how the overall business is performing, although some of (their) increase comes out of the hide of others.”

Sanford Bernstein analyst Tom Wolzien said Blockbuster should be able to increase revenue by more than 10 percent.

“The studios now have a vested interest in promoting videos,” he said.

VIDEO FACTS The top rental for ‘98 was Sony’s “As Good as It Gets,” with $64.2 million in revenue. Disney won the title for total rental revenue with $1.6 billion, or 19.8 percent of the market. Studios count on videos as the source of half of film profits.