Report predicts disc downturn in '07
Analysts see declining sales at Best Buy, Circuit City as harbinger for industry
By Jennifer Netherby -- Video Business, 12/27/2006
DEC. 27 | Declining DVD sales at electronics retailers Best Buy and Circuit City could be an early warning sign of a downturn in the disc business in 2007, a new analyst report warns.
The report out last week from Pali Research analysts Richard Greenfield and Mark Smaldon predicts that 2007 will be the first year that consumer spending on DVD will decline in the U.S.
The analysts expect home video sales to slow to $23.4 billion next year, down 1% from $23.6 billion in spending expected this year. The analysts expect the downturn to come on the sell-through side of the business, particularly in catalog DVDs.
The analysts base their conclusion on declines in disc sales at the two largest electronics retailers over the past four quarters. Best Buy has reported DVD declines in three of the last four quarters and Circuit City has reported DVD declines in two of the last four quarters.
Studio moves into digital downloads and greater emphasis on the video-on-demand business could further depress DVD sales, the report warns.
“We believe the studios should be selling digital downloads at full retail pricing or creating a premium priced digital download/VOD experience closer to the theatrical window,” the report states. “However, we are concerned about the long-term damage the industry could incur from expanding the rental market via digital downloads (that expire) and/or video-on-demand.”
In an October report, the researchers warned that low pricing on downloads could eventually lead to studio pressure to lower pricing on DVDs rather than lose shelf space. If that happened, the researchers don’t believe digital download sales would be enough to make up for lost disc revenue.
The analysts don’t believe sales of high-definition discs will be substantial enough to improve studio revenue next year.
They also warn that the downturn could continue into 2008 unless high-def discs or digital downloads take off.
