A DVD player under every Christmas tree? - Viewpoint

DSN Retailing Today, Dec 16, 2002 by Tim Craig

Gauging consumer confidence this season has been a game of hocus pocus. With many of the leading research firms giving varying views on the Consumer Spending Index going into the holidays, the tone of the season has been one of unpredictability. And nowhere in the merchandise mix has this come through clearer than the toy department, where fear of soft spending has kept inventories low and created a void in the area of the must-have holiday item.

At times, this unpredictability has resembled veiled pessimism, as many retail analysts have hinted of a weak holiday with such phrasing as "noticeable downshift," "guessing until the very end" and "sustained sales slowdown."

Fortunately, there may just be a built-in silver lining this year that counters the effects of the proverbial coal-filled stocking. In plain sight, for everyone to see--it's even plastered on the front pages of many retailer's weekly circulars--is this year's white-horse holiday gift: the super-discount, loss-leader DVD player selling at the astronomically low, "this-must-be-a-misprint" price of under $60.

It seems just yesterday the opening price-point for single-tray DVD players was stuck at $99. But, my, how times have changed. Everywhere you look this holiday, DVD players are jumping off the ad pages at hot-cake prices. During the first week of December, everyone from Wal-Mart and Circuit City to Buy.com and Amazon were advertising opening price-point players in the $58 to $59 range. What's more, many highly respectable veteran consumer electronics manufacturers, including Panasonic, Samsung and RCA, have produced multi-tray, multi-function players in the mid-$80s range.

The players themselves are not the real story, though. At such bargain-basement price points, few retailers can hope to pick up any type of respectable margins. But similar to the old saying that "behind every good man, there's an even better woman," in the digital video market it holds true that behind every good DVD player promotion, there's an even better plan to merchandise DVDs. And if each player sold is the catalyst for multiple DVD software sales, it's the DVDS themselves that will make the hot holiday headlines in early January. For it's the disc, whose margins are built on a foundation of sub-$1 costs for each injection-molded polycarbonate disc (aka DVD), that produces through-the-roof profits that lead to holiday fortunes.

According to estimates by the DVD Entertainment Group, the rate of consumer adoption of digital video has grown at a blistering pace since 1999. DVD software unit sales rose 76% in the fourth quarter of 2000, and 77% in the fourth quarter of last year. And despite all the talk of a soft economy, this year's indicators (including the consistently strong quarter-over-quarter percentage increases from last year to this year) suggest DVD software unit sales will easily top 240 million units by the end of the current quarter, bringing the 2002 unit shipments total to more than 666 million (vs. 364 million in '01, and 182 mil. In '00).

Making the belief that it will be a banner year for DVD all the more plausible are the late-November sales results published by some of the retailers themselves. Amazon, for one, reported a 70% year-over-year unit increase in DVD player sales for the month of November, and said chart-topping video titles (all on DVD accounted for five of the 10 bestselling items overall for the month. Furthermore, Kmart.com cited DVDs among the top five volume items (in both units and dollar sales) for the extended Black Friday weekend.

Despite everything we keep hearing about the Furby-less '02 holiday, DVDs are on track to blow out the doors this month, and in the process may just salvage the season--if not the entire year.