DVD TO HIT TWO-THIRDS OF HOUSEHOLDS IN 2004

DAN ALAIMO

LAS VEGAS -- With price points dropping on both DVD players and DVD recorders, the Digital Entertainment Group, Los Angeles, reported that DVD hardware is now in more than half of U.S. homes -- and will reach two-thirds before the end of 2004.

Issuing statistics during this month's Consumer Electronics Show here, the DEG said consumers spent $22.5 billion renting and buying, compared to the $9.2 billion spent at the theatrical box office.

As Bo Andersen, president, Video Software Dealers Association, Encino, Calif., put it, "We have simply run out of superlatives to describe the DVD phenomenon."

Even Bill Gates, chairman and chief software architect, Microsoft Corp., Redmond, Wash., took note of DVD in his CES presentation. "DVD players for movie playbacks, they have been a runaway hit," he said.

Overall combined spending on home video was up 18.2% in 2003 over 2002, and DVD represented 72% of all home video transactions, according to DEG. Retail sales of DVD grew 33% during that period, to $11.6 billion, and DVD rentals were up 55% to $4.5 billion.

"DVD has been fantastic," said a nonfood executive with an eastern Texas supermarket chain. "New releases are blowing out. Old releases are blowing out. We're seeing budget product anywhere from $3.99 to $19.99. Even at Christmas, we had some 45-day-old new releases at $9.99 that did fantastic in our stores. Our video business is up about 60%, and it's all driven by the DVD explosion."

"Clearly, DVD is taking the lead over VHS," said Gerry Buckles, director of health and beauty care/general merchandise, Associated Grocers, Baton Rouge, La.

DEG figures, based on data from the Consumer Electronics Association, Arlington, Va., showed that 34 million DVD players were sold in the United States last year, approximately a 34% increase over 2002, with almost 17 million DVD players sold in the fourth quarter, a 29% increase. Cumulatively, over 90 million DVD players have been sold since the format launched in 1997. With about 37% of households owning more than one player, DEG said this translates to total U.S. DVD household penetration of 57 million.

Over 381 million DVD titles were shipped to retailers in the fourth quarter of 2003, according to numbers from Kaplan, Swicker and Simha, Encino, Calif., compiled for DEG. This was up 43% over the year prior. In 2003, over 1 billion software units were shipped, bringing the total since the format's launch to almost 2.4 billion units.

"With sales of both hardware and software reaching new record levels, the DVD format has emerged as the dominant format in the home entertainment industry," said Bob Chapek, president of DEG, and president of Buena Vista Home Entertainment, Burbank, Calif.

The DVD RW Alliance, Denver, reported during CES that pricing has become a secondary issue to the features and functionality of recordable DVD hardware. "A year ago at CES, most of the conversation about DVD recording focused on a single question: When will prices come down enough to make DVD recording equipment attractive to mainstream consumers?" said Maureen Weber, general manager of HP's Optical Storage Solutions Business, Palo Alto, Calif., and chief U.S. spokeswoman for the DVD RW Alliance.

"Well, that has happened. And the conversation has become much more interesting because consumers are beginning to ask about features and functionality," Weber said at the show.

Current features, or those about to be released in DVD RW products, include electronic programming guides; one-button, home-movie authoring; single-step VHS conversion; and digital camcorder inputs, the Alliance reported.