BRINGING ON THE HITS 2004-08-30 (1)

DAN ALAIMO / Additional reporting: Liza Casabona

Record fourth quarters are becoming old hat in the video category.

The magnitude of the studio release schedule keeps getting bigger, the supplemental content on the DVDs keeps getting better, and the already-voracious appetite of consumers for more discs shows no signs of letting up. Meanwhile, DVD players seem to be showing up everywhere: cars, airplanes, computers and video game consoles. In addition, recordable units have arrived at price points acceptable to the mass market.

How much bigger can DVD get? While no one knows the answer, retailers will get a glimpse into DVD's future this fourth quarter when all these trends come together in the biggest selling season of the year.

"It's going to be a huge fourth quarter again, just like last year," predicted Bob Gettner, video buyer/coordinator, B&R Stores, Lincoln, Neb. "The studios want to get all those titles out there right before Christmas to get those sales."

"I think we are going to have the best sell-through quarter that we've ever had. The big hits are going to lead the market right into a big, big quarter," opined Carl Day, owner, Day's Market Place, Heber City, Utah.

Leading the pack will be three huge family-friendly hits: "Shrek 2," "Harry Potter and the Prisoner of Azkaban" and "Spider-Man 2." Also, two major catalog re-releases will draw heavy consumer interest: "The Star Wars Trilogy" and "Aladdin." A long list of major titles grossing more than $100 million will keep up a constant flow of product. Among them: "Van Helsing," "Elf," "The Bourne Supremacy," "Dodgeball: A True Underdog Story," "The Day After Tomorrow," "The Village," "I, Robot" and the politically controversial "Fahrenheit 9/11."

Each year, video's fourth quarter seems to stretch its boundaries past the traditional calendar dates. August brings the religiously controversial "The Passion of the Christ," which releases tomorrow and is expected to sell throughout the season. Direct-to-video titles like "Barbie as the Princess and the Pauper" and "Care Bears Journey to Joke a Lot" will come out in September, along with "Scooby-Doo 2: Monsters Unleashed" and the "Star Wars Trilogy."

While it's too early to predict what video releases will come out in January, the studios have recognized the importance of that post-Christmas selling period when consumers are looking for DVDs to use on their new players. Some have dubbed this time period "the fifth quarter." Late summer or early fall theatrical hits may be released timed to sell in this window, some in the last weeks of the year and some in January, industry sources said.

"The video lineup for the fourth quarter of 2004 is the strongest we have seen in years, with a combined projected box office over $3.1 billion," said Leslie Baker, vice president of grocery and drug for distributor Ingram Entertainment, La Vergne, Tenn. "With 26 notable titles, 14 movies either are already well above $100 million at the box office or projected to perform over $100 million. It should be a fantastic holiday season for grocery retailers," she said.

"Even though we don't normally carry new releases because of the theft factor, you have to have titles like 'Shrek 2,' 'Harry Potter' and 'Spider-Man 2' out there because they are huge," stated a nonfood executive with an east Texas retailer.

"That's the kind of product you have to stay on top of because it's hot," said Rex Harcourt, president, Carter's Food Centers, Charlotte, Mich. "Fourth quarter is a good time for some of the nostalgic stuff, like the old James Stewart movies. We do a good job with those. They're good stocking stuffers."

"The fourth quarter is really awesome with all the mega-titles coming out," said researcher Bob Alexander, president of Alexander & Associates, New York. "It starts with 'The Passion' on Aug. 31. There's some major title coming out probably every other week through the end of the year."

At Twentieth Century Fox Home Entertainment, Century City, Calif., Steven Feldstein, senior vice president, marketing communications, said, "Every year, we ask, 'How can we top the previous year?' But we continue to do so. Look at the box office. The summer box office is going to translate to retail shelves in the fourth quarter."

This year's fourth quarter "is going to be huge," said Glenn Ross, president of the Family Home Entertainment division of Lions Gate Entertainment, Santa Monica, Calif., and executive vice president of Lions Gate. "I think the biggest issue that everybody in the retail environment has in the fourth quarter is finding enough floor space to put all the great product that's coming out."

"Every year, the fourth quarter grows and grows. There's more and bigger theatrical product. There's more and bigger direct-to-video product. There's more opportunity for everybody. The biggest issue is floor space -- finding the floor space initially, and keeping the product out there long enough," Ross explained.

"The fourth quarter should be a good one," said Ted Green, chief executive officer, Anchor Bay Entertainment, Troy, Mich. "There's some tremendous studio product coming out that will drive people into the video sections of supermarkets and other retailers." The rapidly expanding base of installed DVD players is a big factor in the sales growth of software titles, he added.

Better economic times will mean more video sales, said Debbie Ries, senior vice president, sales, HIT Entertainment, Allen, Texas. "We've been affected by the war, the economic uncertainty; people weren't feeling secure about their jobs. We're definitely going to have a better year because people feel better about where they are economically," she said.

"I see an incredibly rich and diverse landscape of product," said Bill Sondheim, president, GoodTimes Entertainment, New York. "We've had some great movies this summer, some great brands and lines of product, and some great direct-to-video brands are coming. So if you are a consumer or a retailer, you have a lot of opportunities."

Retailers who only bring in the biggest titles are being shortsighted, said Scott Guthrie, vice president, sales and channel development, Buena Vista Home Entertainment, Burbank, Calif. "There's also some great segmented product that fits in the $40 million to $50 million gross box office range that will be really effective at retail," he said.

The amount of software coming out in the fourth quarter presents a challenge to retailers, but the increase in the number of DVD players is an opportunity. "A retailer who starts thinking through that now and growing in the category will see a huge uptick in their business," Guthrie commented.

"There's no question that this will be the best sell-through year ever," said Greg Rediske, president of Video Management Co., based in Tacoma, Wash. The changeover to DVD has been snowballing. As a result, consumers have a strong desire to build up their DVD libraries, he said.

DVD theft remains an issue for many retailers. For example, Bashas', Chandler, Ariz., is considering rolling out a locking display unit. "We find our fourth quarter is always strong in terms of rental, and sell-through is going to depend on what we do about security," noted Ray Wolsieffer, video specialist.

Also, the retailer does well selling previously viewed movies, which Bashas' merchandises in the open, although in areas where employees can keep an eye on the product, Wolsieffer said. He observed that VHS remains strong at Bashas' for rental and sales. "Pre-viewed VHS sells like hotcakes," he said.

Although margins on the big hits are usually thin due to competition, titles like "Shrek 2," "Harry Potter" and "Spider-Man 2" have many cross-promotional partners including products sold in supermarkets, noted Lanny Hoffmeyer, corporate director, wholesale general merchandise, Supervalu, Eden Prairie, Minn. "So there will be some opportunities to perhaps make some money on the peripheral products that tie into the titles themselves."

Box Office Bonanza

Led by "Shrek 2," "Harry Potter and the Prisoner of Azkaban" and "Spider-Man 2," movies being released on video for this year's fourth quarter are projected to have a total box office of more than $3.1 billion, according to Ingram Entertainment, La Vergne, Tenn. This is a sharp increase from previous years. Ingram supplied SN with box office data and key titles for 2001 through 2003 for the period from Oct. 1 to Dec. 31.

2001 -- Box office $2.4 billion; 11 titles over $100 million. Notable titles included: "Shrek," "Lara Croft: Tomb Raider," "Dr. Seuss' How The Grinch Stole Christmas," "Pearl Harbor," "Rush Hour 2," "Jurassic Park III," "Dr. Dolittle 2," "The Mummy Returns," "Planet of the Apes" and "The Princess Diaries."

2002 -- Box office $2.7 billion; 12 titles over $100 million. Notable titles included: "The Scorpion King," "Scooby-Doo," "Mr. Deeds," "The Sum of All Fears," "Spider-Man," "Men in Black II," "Ice Age," "Austin Powers in Goldmember," "Lilo & Stitch," "Minority Report," "XXX" and "Star Wars: Episode II -- Attack of the Clones."

2003 -- Box office $2.75 billion; 14 titles over $100 million at the box office. Notable titles included: "Finding Nemo," "The Pirates of the Caribbean: The Curse of the Black Pearl," "The Italian Job," "The Matrix: Reloaded," "Charlie's Angels: Full Throttle," "The Hulk," "Terminator 3: Rise of the Machines," "The Santa Clause 2," "Bruce Almighty," "X2: X-Men United," "Bad Boys II," Seabiscuit," "Freaky Friday" and "S.W.A.T."