Contrasted with the high growth years of the past, and the years when multiple retailers exited the video business, 1999 was a quiet year for home entertainment in supermarkets. It did not grow significantly, nor did it contract much, while rental buying programs, and the growth of DVD and video games occupied much of buyers' time and attention.
Supermarkets started the year complaining about heightened competition from the big video specialty chains like Blockbuster and Hollywood, and complicated copy-depth buying programs. The retailers took their case to the studios during the Video Software Dealers Association convention in July and were seeing more grocery-friendly buying programs by the fall. By the end of the year, supermarkets were seeing improved results in video rentals, according to suppliers.
Other retailers, such as Ingles Markets in Black Mountain, N.C., and C&K Markets, Brookings, Ore., began to use the pay-per-transaction system of Rentrak Corp., Portland, Ore. Quietly, Rentrak has become a force in supermarket video, supplying more than 1,200 supermarkets, according to sources. Besides Ingles and C&K, the roster is known to include Harps Food Stores, Springdale, Ark.; the Safeway division in Bellevue, Wash.; Randall's Food Markets, Houston; King Soopers, Denver; Dick's Supermarket, Platteville, Wis.; Bauersfeld's, Topeka, Kan.; and many independents.
1999 was the end of the road for some video programs, but others expanded. The Kroger divisions in Cincinnati and Roanoke got out of the rental business, as did the Safeway division in Denver. On the other hand, Giant Eagle, Pittsburgh, began to expand its massive Iggle Video shops into the Cleveland market and some of the American Stores supermarkets acquired by Albertson's -- notably Acme Markets, Malvern, Pa. -- started to reflect the Boise, Idaho, chain's commitment to video. Other supermarkets, like Seaway Food Town, Maumee, Ohio, installed permanent video sell-through sections to take advantage of that segment's sales and profit potential, and chains across the country rode the DVD wave, at least with rental product.
The explosive growth of DVD was the biggest story of the year in the overall video category. For the first nine months of the 1999, 2.2 million DVD hardware units were shipped, an increase of 1.6 million units over the same period last year, according to the Consumer Electronics Manufacturers Association, Arlington, Va. Over 3 million hardware units are expected to ship by the end of the year.
"More important is what is happening in terms of the sets in people's homes," said Steve Nickerson, vice president, marketing, Toshiba America Consumer Products, Wayne, N.J. "Today a conservative estimate would be that there are 3 million units in the homes. That is by far the fastest adoption of any consumer electronics product ever." The total installed base is expected to exceed 4 million after the holiday season.
In software, the DVD Video Group, Los Angeles, reported that 55 million discs were shipped to retail in the first three quarters of this year -- over 110 million total discs have been shipped since the format was launched in the spring of 1997. Assuming an average selling price of $20 a DVD, this equals $2.2 billion in sales, said Paul Culberg, executive vice president, worldwide, Columbia TriStar Home Video, Culver City, Calif. and president of the DVD Video Group.
Supermarket retailers are both renting and selling DVDs. "We're having pretty good luck with the sales of DVD," said Craig Hill, video specialist, Harp's Food Stores, Springville, Ark.
At the beginning of the year, DVD proponents were dueling with a second disc-based format, Divx, short for Digital Video Express, Richmond, Va., which reported strong sales for December 1998. But in June, Circuit City Stores, also of Richmond, and part owner of Divx, discontinued Divx's operations, citing a lack of studio and retailer participation. Another major story that made lots of headlines, but minimal impact in stores, according to retailers, was the violence in video games issue. In the spring, following the tragic shootings at Columbine and reports that the shooters were avid game players, politicians and other activists called for limitations on games. The industry fought back during the Electronic Entertainment Expo show in Los Angeles in May.
"The entertainment-software industry has no reason to run and hide," said Douglas Lowenstein, president of the Interactive Digital Software Association, Washington, D.C. "We do have responsibilities to consumers and we've been proactive in meeting them." By the end of the year, IDSA had strengthened its game rating system and VSDA had re-launched its "Pledge to Parents" program, with retailers promising not to rent inappropriate games or movies to children. Next year, the Motion Picture Association of American, Los Angeles, and the National Association of Theater Owners, Washington, D.C., plan to include more information about the content of movies in advertising along with the MPAA ratings.
But retailers said the media storm had little impact at store level. "The controversy over media violence has not affected our rentals or revenue," said Bob Gettner, video buyer/coordinator, B & R Stores, Lincoln, Neb.
Retailers also saw revenues from game rentals rise as the Sony PlayStation and Nintendo 64 systems and games were priced more aggressively in reaction to the launch of Sega Dreamcast, which also contributed to rentals. "Dreamcast is here and, knock on wood, it seems to be doing really well for us," said Hill of Harp's.