The domestic video sales and rental business is slipping, continuing a downward trend that began in the second half of 1995 after 14 years of steady growth.
VidTrac, a video tracking system operated by the Video Software Dealers Association, reports that video rental revenues have fallen nearly 8 percent so far this year at U.S. stores. Meanwhile, video sales are also on the decline, down 4 percent from this time last year.
Though the numbers indicate that the home video industry has peaked domestically, analysts and studio sources point out that international sales and rentals are booming more than making up for the loss.
Domestically, the drop follows a slowdown that has been creeping up on the home video industry since 1990.
Since then, the average annual growth rate in rentals has fallen to around 3 percent. In the second half of 1995, rentals actually suffered a decline of 7 percent for the first time since 1981.
Movie studios are reacting to the downturn by spending huge sums to market big releases. Universal Studios Inc. will launch an unprecedented $50 million marketing campaign to support its “Lost World: Jurassic Park” video when it hits stores Nov. 4.
The biggest threat to the business, say some, is direct broadcast satellite services.
Since their introduction in 1994, the two major satellite companies, El Segundo-based DirecTV Inc. and PrimeStar Partners L.P., have picked up 2 million subscribers each. On top of that, satellite dish prices are dropping significantly. Less than two years ago, home dishes sold for $600, but now they sell for about $200.
As a result, satellite television technology has experienced one of the fastest adoption rates ever seen in consumer electronics.
Market research studies show that satellite subscribers are the same people who were once heavy video renters. According to one study done by Inteco Corp., satellite users rent 30 percent fewer videos after installing their satellite dishes.
“You could order a movie that’s just been released for three bucks and not have to drive to a video store to pick it up or drop it off,” said Steve Cesinger, an analyst with Grief & Co. “The convenience factor is finally starting to set in.”
Other threats to video rentals include pay cable television and the growing use of the Internet. Some even blame a lack of popular movies for this year’s dip.
“There’s a title problem. Not as many titles being released this year are breaking the top 10 as last year,” said Robert Liuag, a research director at the Video Software Dealers Association.
“When you look at the titles this year vs. last year’s ‘Babe’ or ‘Toy Story,’ it’s obvious that the level of titles is not the same,” said Tonya Bates, general manager at Westlake Village-based video tracking firm VideoScan.
The flat rental market comes at a bad time for video rental giant Blockbuster Entertainment, which reported a 47.4 percent drop in cash flow from its video stores during the second quarter. The Blockbuster chain accounts for as much as a quarter of the domestic video business.
While domestic video rental revenue is extremely important to studios (about half of the $16 billion annual intake from the video industry comes from rentals, of which about 25 percent goes to the studios), growth in international markets has resulted in a change of focus.
Fox recently combined domestic and international video operations under one roof and placed Jeffrey Yapp, formerly in charge of the international division, at the head of the entire operation. Fox’s international video sales have quadrupled in the last three years, growing from $200 million to $800 million last year. Fox has also added an additional 10 new countries to its international video market.
Walt Disney Co.’s international home video division has expanded its global operations from 30 markets to 80 in the last 11 years. It pulled in $1.8 billion in 1996.
