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Industry questioning whether DVD has peaked

Mike Snider USA Today

DVD may have driven the home video industry to a record year in 2004, but some industry observers see hurdles ahead in 2005.

Overall home video revenue rose to nearly $24.5 billion, up 9 percent from 2003. But prices continued to drop, reducing hit titles to commodities sold at supermarkets and truck stops.

An estimated 1.2 billion DVDs were sold last year, but no individual title could match the pace set by “Finding Nemo,” which sold 28 million copies in 2003. Last year, “Shrek 2” led with 4 million.

These trends have led some to question whether DVD has peaked. If so, that has ramifications for the studios, which rely on DVD to carry some movies to the break-even plateau or over it to profitability.

As DVD reaches new converts (about 70 percent of homes have players), those newcomers are expected to buy fewer DVDs than early adopters of the format. And those who have had DVD players for a while may be getting pickier about their purchases even as prices of some new releases drop below $15.

“In the past several years, you could just about throw out anything and everything, and it would sell,” says Scott Hettrick, editor in chief of DVD Exclusive, a trade publication. “Now, I think it is going to require a lot more thought and careful strategy on the part of studio executives, because we’re in a mature market that is saturated with DVD programming.”

Has DVD peaked? That depends on your point of view. Based on numbers of homes with players and total number of DVDs and players sold, the format’s popularity continues to rise.

But if you look at the average number of DVDs bought by the DVD homes, the peak of 25 was in 1998; the past few years it has been about 15. Annual sales growth in 2000 was 136 percent; last year’s growth was about 23 percent.

With more than 20,000 DVD titles released in the past two years, “the glut of product not only created price erosion but also an issue of shelf space,” Hettrick says. “If it’s not selling in the first week, it’s gone.”

Bulky DVD sets of TV series added to crowding but were snatched up. That category’s big hit of the holiday shopping season was the first “Seinfeld” DVDs. About 4 million copies of the first three seasons of the show were sold, making it the highest-grossing and fastest-selling TV DVD so far, says Sony Pictures Home Entertainment president Benjamin Feingold.

” ‘Seinfeld’ became a huge event as opposed to a normal TV DVD where you ship a couple of hundred thousand units,” Feingold says. “And Dave Chappelle (‘Chappelle’s Show Season One’) did fantastic.”

But one problem, Hettrick says, is that “when you buy a six-disc set of a TV series, you have to spend a lot more time watching that before you are buying another one. It might be cutting into the business of selling other DVDs.”

Studios could stoke revenue with new DVDs that deliver high-definition video that’s crisper and more three-dimensional. Early adopters might spring for expensive new disc players and, once again, buy new versions of their favorite films.

But there are plans for two different high-definition video disc formats: the Blu-Ray Disc championed by Sony, Disney, Panasonic and others, and the HD-DVD, supported by Warner Home Video, Universal, Paramount and Toshiba.

A format war probably will confuse consumers.

“I’m still hopeful that we are going to find a way to get to one format,” says Craig Kornblau, president of Universal Studios Home Entertainment. “If not, it would be a real shame.”

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