While retailers went into past fourth quarters strong in the knowledge that the summer box office had hit new highs and DVD sales were on a gravity-defying upswing, this year it's another matter.
No one knows for sure if video sales will meet, much less beat, last year's numbers, as the summer box office has been, as is being widely reported, anemic. Meanwhile, DVD growth percentages are still healthy, but coming down to earth.
Will the summer finish strong, with a big blockbuster saving the day? Will mediocre titles outperform their box office track record on video, as has happened so often in the past? Or will this be the first disappointing fourth quarter since DVD started its meteoric growth?
Looking ahead, the video category in the fourth quarter of 2005 is a mystery to retailers, one that they hope will have a happy ending by the time the credits roll on Dec. 31. Many are optimistic.
"With everything I'm reading and all the huge releases that are coming out for the fourth quarter, I would say it's going to be as good as last year if not better," said Bob Gettner, video buyer/coordinator, B&R Stores, Lincoln, Neb.
"We were just talking about 'Madagascar' the other day, and 'War of the Worlds.' There are so many coming out -- granted, probably not all of them are going to be huge ones -- that the fourth quarter, to me, looks like it's going to be another stellar one," he said.
"The release schedule will be picking up after a rather soft beginning during the first three quarters of the year," said Bill Bryant, vice president of sales for video distributor Ingram Entertainment, La Vergne, Tenn. It will also be "significantly better for retail. 'Star Wars,' 'Madagascar,' 'Polar Express,' 'War of the Worlds,' 'Cinderella Man' are all titles that should do very well." It's going to be a brisk selling period, Bryant said, "even though consumers are being more selective in what they're buying these days because their libraries are getting quite full. It was quite a buying frenzy over the last few years."
January and February of 2006, on the other hand, figure to be "pretty light," added Bryant, which is not unexpected. To compensate, retailers will do budget and other promotions, "and then there usually is a big sell-through title that drops in the first quarter."
Greg Rediske, president, Video Management Co., Tacoma, Wash., said the last three or four months have been "dismal" in terms of titles. "In 20 years, I have never seen this length of time with such poor title selections. From May forward, I don't think there has been a month with more than 10 titles with box office over $5 million. It's made quite a negative impact on rentals, and sell-through as well."
Rediske said he has "high hopes" that the fourth quarter will be an improvement over the last several months, "and I'm sure it will. But it would appear that that performance will pale compared to previous years. There are a couple of biggies coming, like 'Star Wars,' but it's been a tough year for movies." Video Management's greatest success in grocery video sales, however, remains budget product, which is impulse-oriented, carries better margins and tends not to get shoplifted.
"The supermarkets are selling DVDs," noted Ray Wolsieffer, video specialist, Bashas', Chandler, Ariz. "One of the problems I've seen is the quality of the studios' product." Quality, he stressed, means more than simply box office appeal.
"This has been somewhat of a weak summer for movies coming into the stores, in terms of high quality and high box office," Wolsieffer noted. "I think that's an important thing to get people to buy DVDs." He was quick to add, however, that Bashas' remains "committed to good product for rental and sell-through. We certainly do not put out titles that we think will be offensive. I think as the studios lean more heavily into more descriptive content and become overzealous with their violence and other content, we really are cautious about putting that stuff into the stores at all."
The slowdown in video is "common sense because of the [theatrical to retail] lag," said Jerilyn Kessel, cofounder, Centris in Santa Monica, Calif., which tracks over 75 communications, entertainment and technology areas at the household level on a daily basis.
"Whatever happened four or six months ago at the box office is going to be representative of what's going to happen at video [retail]. It's correlative. The box office just hasn't been fantastic. 'War of the Worlds' is going to do very well, and I'm sure they're going to plan that for a holiday release. It's the gift-giving season," Kessel said.
The NPD Group, Port Washington, N.Y., still expects DVD sales increases in the high single and low double digits in the fourth quarter despite the box office dry spell, according to Russ Crupnick, president of NPD's Music and Movies division.
What will account for it? Crupnick sees help in the wings from what he calls "a lot of supporting pieces to the video market," such as TV on DVD. For example, NPD's VideoWatch tracking service announced in June that TV-on-DVD unit sales increased by 24% in the six months ending March 2005 compared with the same time period the year prior. This sub-category has been growing significantly in number of titles, shelf space and unit sales, he said.
Together with other subsegments like specialty and discount DVDs, this should help to buffer some of the box office softness. "You've also certainly still got a very, very deep catalog," Crupnick added. "The vaults are still very full with content that will be compelling to consumers. I don't think the studios have run out of gas yet."
Yet another plus that can't be overlooked is that DVDs make popular gifts. As Crupnick pointed out, "If you look at fourth quarter of 2004, about one in three new DVDs were bought as a gift for somebody. This is a great gift category, and as long as people still see it as such, the gift purchasing will help to support the category."
October's grab bag of DVD titles will include "The Interpreter," "The Amityville Horror," "Kicking & Screaming," "Kingdom of Heaven," "Herbie: Fully Loaded," "Bewitched," "House of Wax" and "Batman Begins." Warner Home Video, Burbank, Calif., also plans two-disc special editions of the four original Batman movies: "Batman," "Batman Returns," "Batman Forever" and "Batman & Robin."
In November, retailers will see no fewer than four $100-million-plus blockbusters coming to shelves as DVDs, and possibly a fifth. DreamWorks Home Entertainment, Glendale, Calif., plans to release "Madagascar," an animated feature that grossed $189.3 million theatrically, on Nov. 15, one week ahead of Warner Home Video's "The Polar Express." In addition, Twentieth Century Fox Home Entertainment, Beverly Hills, Calif., will roll out "Mr. and Mrs. Smith" on Nov. 29. By the end of November, Fox is expected to have released "Star Wars: Episode III -- Revenge of the Sith." Also scheduled for release are DreamWorks' "War of the Worlds" and Warner's "Charlie and the Chocolate Factory."
In December, shoppers will find feature films such as "Stealth," "Cinderella Man," "The Island," "Fantastic Four," "March of the Penguins," "Must Love Dogs," "Hustle and Flow," "Red Eye," "The Man" and "Dukes of Hazzard."
Bryant sees the volley of big-name releases as a much-needed shot in arm for the business. "In past years, the release schedule has been more spread out than it has been this year -- and it's been fairly light during some months during 2005."
VSDA's Snapshot of America
ENCINO, Calif. -- In the recently released 2005 Annual Report on the Home Entertainment Industry, the Video Software Dealers Association details the growth of DVD in both consumer spending and breadth of product as home video continues to be consumers' preferred choice for viewing the latest hit movies. Among its findings:
- In aggregate, consumers spent more than twice as much money buying and renting DVDs and VHS cassettes in 2004 than in purchasing tickets at the theatrical box office.
- Consumer spending on home video in 2004 exceeded $24 billion.
- Sell-through accounted for over $16 billion, an increase of 15% over 2004.
- Rental generated $8 billion, remaining flat with 2003.
- In 2004, the major motion picture studios generated $21 billion worldwide from home video, 47% of all worldwide studio filmed entertainment revenue.
- Nearly 60% of U.S. households had at least one console DVD player by the end of 2004. If portables are included, 73% of U.S. households had the capacity to view a DVD.
- For the first time, DVD players began to replace rather than supplement the VCR, as VCR penetration actually declined in 2004.
- By the end of 2004, more than 40,000 titles were available on DVD.
- Sales of single-disc TV on DVD releases increased 74% between 2002 and 2004.
- Spending on music DVDs increased 60% in 2004.
- Estimates of consumer spending on previously viewed VHS and DVD copies in 2004 ranged from $658 million to $2 billion.