Home entertainment down at the half

Sell-through falls 6.5% on weak slate; studios still have high hopes for fall

By Jennifer Netherby -- Video Business, 7/16/2007

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JULY 16 | Blame it all on the release slate.

Consumer spending on home entertainment sales and rentals slipped 4.8% to $10 billion during the first half of the year, according to Video Business research.

Sales of all formats combined took the biggest hit, sliding 6.5% to $6.2 billion, while rental was off 3.3% at $3.8 billion.

Home video execs say it’s all due to a weak theatrical release slate reaching DVD. Top sellers Happy Feet, Night at the Museum and The Departed weren’t enough to lift sales above last year when The Chronicles of Narnia: The Lion, The Witch and the Wardrobe, Harry Potter and the Goblet of Fire and King Kong conquered video.

The cumulative box-office of DVDs released in the first half of 2007 was off 5%, and there were fewer releases with a box-office topping $100 million.

Big hits not only mean more sales for those individual titles but also bring consumers into stores where they end up making impulse purchases on smaller films, catalog and TV releases, executives said.

“Those big $100 million movies lift all boats in the category,” 20th Century Fox Home Entertainment president Mike Dunn said.

With box-office on summer releases due on DVD in the second half already up 5% over last year, home video execs are cautiously optimistic that consumer spending will end up flat in 2007, with some even predicting a small increase.

“Everybody is expecting the biggest fourth quarter ever given the strength of movies coming out this summer,” said Matt Lasorsa, New Line Home Entertainment executive VP of marketing.

The other good news is that consumers aren’t cutting back on DVD purchases, even with the introduction of digital downloads and high-definition formats. According to Sony Pictures Home Entertainment, U.S. households went from buying 12.5 discs on average four years ago to 14.4 last year.

And on a title-by-title basis, releases during the first half were performing better than similar releases did the prior year, when sales missed expectations by 5% to 10%, said Ron Sanders, Warner Home Video president.

“We were worried that that kind of trend would continue this year, but it rebounded back to what it was previously,” he said.

Sanders said Warner's Happy Feet, The Departed, Blood Diamond and Letters From Iwo Jima all outperformed expectations, which allowed the studio to hold its No.1 market share position.

Fox, Sony, Paramount Home Entertainment and Lionsgate all made significant market share gains. Fox, which added MGM Home Entertainment distribution over the last year, pulled into No. 2, with a 17% share thanks to strong new releases, including Night at the Museum, and strong catalog sales.

See the Top 20 DVD renters.

Sony, which had the biggest share of rentals during the period and saw 40% growth in its catalog sales, was No. 3 with a 15.7% share. Paramount grew its share to 11.9% with the added distribution of DreamWorks and a strong first-quarter slate, which included Charlotte’s Web, Flags of Our Fathers and Dreamgirls.

Walt Disney Studios Home Entertainment and Universal Studios Home Entertainment both saw their shares shrink due to weak release slates. Disney’s Apocalypto wasn’t enough to compete against prior year’s Narnia and Chicken Little.

Universal had no big titles.

“The Universal slate in the first half was weaker than it has been in a decade,” said president Craig Kornblau. “Come the back half of the year when the big titles come in, that will change.”

While catalog sales were off 5% industrywide by most estimates, Paramount, Sony, Fox and Lionsgate all reported gains.

Paramount president Kelley Avery said tie-ins with theatrical releases helped the studio grow its catalog business and made Shrek 2 a top catalog seller among recent new releases.

“It just shows the strength of the category and people’s enthusiasm for movies and franchise movies,” Avery says. “There’s still a market out there for Shrek.”

TV DVD sales also continued to show strength, execs said.

Blu-ray Disc and HD DVD sales, meanwhile, overtook VHS, which has dragged down the business in previous years.

Sliding DVD sales are putting more pressure on studios to develop the high-def market in the fourth quarter.

“What is likely to happen as the business starts to flatten or trend downward, is it becomes less exciting for retail and they dedicate less space to it,” SPHE worldwide president David Bishop said. The best way to create new excitement is with Blu-ray, he added.

Most studios plan to release movies day-and-date on DVD and one or both of the high-def formats in the fourth quarter. DreamWorks and New Line are the only studios yet to announce high-def releases.

Execs acknowledge that eventually high-def disc sales will start to cannibalize DVD as consumers upgrade to the new format, but they don’t expect that to happen this year.

Digital sales, meanwhile, are small but growing.

“It’s showing itself not only to be real but the potential to be significant and accretive to the overall home entertainment business,” said Steve Beeks, Lionsgate president.

Still, DVD remains the main focus.

“In consumers' minds, DVD is still really primary,” said Lori MacPherson, Disney general manager of North America. “There’s a lot of news about digital and Blu-ray, and that’s exciting. For the mainstream consumer, they’re still thinking about their DVD library, though a lot of them are dabbling in new formats.”

Top DVD Renters

Rank	Title	Label/Distributor	Release Date
1	The Departed	Warner	Feb. 13
2	The Pursuit of Happyness	Sony	March 27
3	The Guardian	Disney	Jan. 23
4	Blood Diamond	Warner	March 20
5	Night at the Museum	Fox	April 24
6	The Illusionist	Fox	Jan. 9
7	Casino Royale	Sony	March 13
8	The Prestige	Disney	Feb. 20
9	Déjà Vu	Disney	April 24
10	The Holiday	Sony	March 13
11	Crank	Lionsgate	Jan. 9
12	Employee of the Month	Lionsgate	Jan. 16
13	Little Miss Sunshine	Fox	Dec. 19
14	Man of the Year	Universal	Feb. 20
15	The Good Shepherd	Universal	April 3
16	Stranger Than Fiction	Sony	Feb. 27
17	Gridiron Gang	Sony	Jan. 17
18	Flags of Our Fathers	Paramount	Feb. 6
19	Babel	Paramount	Feb. 20
20	Open Season	Sony	Jan. 30