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Industry Alarmed Over Slowing Video Sales

Movies: After years of strong growth, revenues declined in 1997. Top titles saw biggest downturn.

April 16, 1998|THOMAS K. ARNOLD | SPECIAL TO THE TIMES

After years of explosive growth, video sales to consumers appear to be slowing down. Two studies show significant sales declines for 1997 as well as the first quarter of this year, surprising industry experts accustomed to year after year of double-digit growth.

"We just assumed it would continue," said Barbara McNamara, manager of Alexander & Associates' Video Flash, a weekly phone survey of 1,000 consumers. "We felt you might see growth slow down somewhat, but we weren't expecting a decline--much less that big of a decline."

Video Flash estimates that for the first 12 weeks of this year, consumers spent $2.2 billion buying videos, down 3.1% from the amount they spent in the comparable period last year. For 1997, Video Flash puts consumer spending at $9.3 billion, down about 10% from $10.38 billion in 1996.

VideoScan, which tracks point-of-sale data from 16,000 retail stores around the country that account for about 70% of all video sales, says purchases for the first quarter of this year are running about 5% behind last year, with 58 million videos sold to consumers in the first three months of the year compared with 61 million in the same period of 1997. Sales for 1997 fell by a similar percentage, says VideoScan General Manager Tonya Bates, to 267 million units from 281 million in 1996.

Retailers and studio executives cite several possible reasons, including the lack of a mega-hit like 1996's "Independence Day" to drive sales; the mass availability of videos at supermarkets and convenience stores where limited selections discourage multiple buys; a transition of the sell-through market from family to more adult-oriented product; and cannibalization from DVD, direct-broadcast satellite and other high-quality alternatives.

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Yet no one's quite ready to say the sky is falling.

Joe Pagano, merchandise manager of movies and music at 285-store Best Buy, says VHS video sales increased just 2% last year after seven years of double-digit gains. Factor in DVD, however, and total movie sales rose 12%.

"I think there's greater excitement around watching movies than ever before," Pagano maintained. "I just think there are more ways to consume them. You have DBS and you have cable and you have rental and you have DVD. And one of the things that is most exciting about DVD is that it offers consumers the chance to rebuild their movie libraries with superior sight and sound quality."

Columbia TriStar Home Video President Benjamin Feingold, whose studio last year released four of the 10 top-selling videos, including "Men in Black" and "My Best Friend's Wedding," also is optimistic.

"We expect video sales to continue to see significant growth, maybe not in the double digits, but in the single digits, over the next five to 10 years," he said.

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Feingold believes that as the population gets older, the sell-through market is shifting more toward adult-oriented titles and the downturn is merely temporary.

"Air Force One," which Columbia TriStar released in February at a mass-market price, is one of the biggest-selling videos of the first quarter. Sony now plans to release the decidedly adult-oriented "As Good as It Gets" for sell-through on May 19.

"After buying so many movies over the years for their kids, adults are looking for movies for themselves," Feingold said. "We've become aggressive in our direct-to-sell-through strategy because we believe consumer acceptance of adult-oriented films with big box-office earnings is greater than in the past, and it's paying off. We were cautiously optimistic about 'Air Force One,' and once we saw the numbers for the first week, we were ecstatic."

The slowdown in video sales is most dramatic among the big titles. VideoScan's Bates said that while overall video sales fell 5% in 1997, sales of the top 50 were off 24.3%--and sales of the top 10 were down a staggering 31%.

Observers note that while 1997 had quite a few hits, there was nothing to match the previous year's "Independence Day." High-profile sequels like "The Lost World: Jurassic Park" and "Batman and Robin" didn't do as well as their predecessors, either at the box office or on video. And Walt Disney Co. has seen a steady decline in sales of its animated features since moving more than 20 million units of "The Lion King" four years ago. "The Hunchback of Notre Dame," last year's entry, sold about half that many copies on video.

By contrast, Bates notes, sales of non-charting titles, many of them older movies that had been initially released to the rental market, actually rose 5.8% from the year before.

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John Thrasher, vice president of video for the 100-store Tower Records and Video chain of West Sacramento, Calif., credits his large selection of catalog titles with boosting overall video sales 15% in 1997.

"It isn't any mystery that 1997 did not have the huge titles that 1996 did," Thrasher said. "And that really hurt the mass merchants, who are driven by hit product.

"The people who are really into collecting are coming into places like Tower and Suncoast Motion Picture Co. and buying more videos than ever, while the parent who is looking for a video baby-sitter is still shopping at the mass merchants for the latest Disney feature or family-oriented hit," he continued.

Best Buy's Pagano agrees with Thrasher on the importance of catalog product. But the hits are still necessary to lure people in, he maintains. The problem is, they're available at too many places.

"These hit films are in many, many locations, like supermarkets and convenience stores, that don't carry a full video assortment year-round," he said.

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