RETAILERS URGED TO GET ON BOARD DVD SHIP

DAN ALAIMO

ATLANTIC CITY, N.J. -- Retailers who aren't on board with DVD are in danger of missing the boat. That was the message delivered by a panel of suppliers at the East Coast Video Show.

For the first nine months of 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," he told show attendees gathered here last month.

DVD hardware growth is not coming at the expense of VCRs, at least not yet, he added. VCR unit sales are up 25% this year to date. "People are buying VCRs faster than they ever have," Nickerson said.

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.

Low return rates are evidence that the product is selling through, said Culberg. "That product is gone; it's not coming back. We can be assured that product will flow through to the consumer," he said.

While the format is still very young and the installed base of hardware relatively small compared to VCRs, DVD owners are voracious consumers of software. "Inception to date, this industry has a ratio of software to hardware sales of 36 to one. That's a staggering amount of units, and an incredible awareness and acceptance level at the consumer level. What that says to me is, any retailer who is not in DVD is missing the boat. Get on this boat right now. This is the opportunity to grow your businesses," said Culberg.

DVD-ROM drives for computers represent a market that was not reached by VCRs. "We think that the DVD-ROM format is particularly suitable for children," said Mitch Koch, senior vice president, general manager, Buena Vista Home Entertainment North America, Burbank, Calif. "Many children have DVD-ROM capable computers in their households."

"Our research shows that 20% of the people who have DVD-ROM drives and can access the net, do in fact do that," said Stephen Einhorn, president, New Line Home Video, Los Angeles. "So if the capability is there, they seem to come." New Line's research also showed that 80% of new DVD buyers appreciate the added value features that are on many titles, he said.

The new generation of video game machines expected next year from Sony and Nintendo will be capable of playing DVD movies and will further expand the marketplace, Koch said. "This is the time to take advantage of the rapidly accelerating DVD environment," he said.

"You have aggressively priced DVDs that are coming out day-and-date with sell-through, so they have a low cost of investment. Then you have rapid expansion of the DVD format by the two major players, Blockbuster and Hollywood. You cannot risk having your customer base encroached upon by not participating in what is a very appealing format," Koch said.

Meanwhile, Circuit City and Best Buy are gaining ground on the sell-through side of the DVD business, he said. "Now is the time to embrace the format because the penetration is not so great, you don't have a lot of copy depth issues, so by having the facings and having some product there you can retain and service your customer in a compelling way. I think now is the time before you lose share in a rapidly growing marketplace," he said.

DVD has become a mass market product in an unprecedented amount of time, said Nickerson. "That's why you see mass merchants like Wal-Mart selling hardware and not just software. I don't think there is any doubt that DVD hardware will be a hot item this fourth quarter," he said.

Film directors are becoming increasingly aware of DVD's capabilities and are keeping the format in mind when shooting. "We are starting to see more and more things like multi-story formats and multi-angles." DVD has potential for these options, but few titles have used them. "Those things are very important because we have found that software drives the hardware. Every time new hot titles have come out, hardware sales spiked," said Nickerson.

Responding to a question about when recordable DVD players will be available, Nickerson said they are at least two years in the future. It took many years for recordable audio compact discs to appear, he noted. "That doesn't even speak to copyright issues. Just from a technical standpoint, to do a true consumer format is going to require different laser technology than what is available today, it is probably two years away," he said.

DVD represented 10% of the total sale of "The Blair Witch Project," noted Jeff Fink, president, sales and marketing, Artisan Home Entertainment, Santa Monica, Calif. "This is a format that every retailer should have in their store both for rental and sell-through," he said.

"You can rent DVD. You can sell DVD. The price points are extremely attractive to get in. You can carry new releases day and date with VHS as well as catalog. You can offer a wide selection of product to your customers and get your customers committed to buying and renting DVD at your stores, so they don't go anywhere else. Now is the time to do it," said Fink.

"Our DVD numbers have been staggering for the first three quarters of the year," said Culberg, and those numbers are going to increase greatly. "If that's any indication of the rest of the industry, it will be a very, very robust fourth quarter. Major retailers are on it very heavily. The web re-sellers are on it very heavily. With the amount of visibility from the hardware manufacturers in advertising exposure committed into the fourth quarter, there's no going to be no stone unturned as to the availability and visibility to the consumer. This is going to be a very important fourth quarter in terms of the compounding of the hardware sales, which bodes very well for the next year," he said.

DVD is a way for video retailers to face future new technologies, he added. "The DVD format as a consumer packaged good is the hedge against internet downloading. You can only get the value-added features on a DVD purchase or rental. So I would not be afraid of any internet activity because of the robust programming. The richness and quality is still much better on that five-inch disc you are handling in your stores, and the potential of interactivity is what's driving this format. This is still a remarkable opportunity," said Culberg.