DVD: the most successful product in CE history

Discount Store News, Feb 7, 2000 by Robert Scally

DVD's starring role in consumer electronics sales this past holiday season is bringing it rave reviews, and retailers are attributing this success to effective marketing and merchandising campaigns as well as a maturing supply chain. "DVD sales exploded [at Best Buy] during the holiday season, with stores reporting triple-digit increases in both hardware and software," said Joe Pagano, vp of merchandising for Best Buy.

"These spectacular results can be attributed to enthusiastic acceptance by the consumer, reduction of hardware prices [and] the release of popular titles such as 'The Matrix,' 'Saving Private Ryan,' and 'The Mummy' as well as the introduction of Disney Classics," Pagano said.

Circuit City, the nation's largest CE retailer, also experienced strong DVD sales during the 1999 holiday season. "Our December 1999 sales exceeded our expectations, nearly doubling last year's industry-leading volumes," said Alan McCollough, Circuit City's president and coo. "We were especially pleased by the strong enthusiasm among our customers for DVD changers and other highly featured models."

DVD discs have sold more than 100 million copies and nearly 5 million DVD players are currently in use by consumers. In addition, the number of DVD video players shipped to retailers since the format was launched in the fall of 1997 has increased to more than 5.4 million, according to the Consumer Electronics Manufacturers Association.

This strong rollout has made DVD the most successful introduction of any consumer electronics product in the history of the industry. In its first three years on the market, DVD has outsold the VCR five to one (compared to the first three years of VCR sales) and has beat the audio CD four to one.

"With over five million players in consumer homes, DVD video has clearly reached mainstream acceptance," said Emiel Petrone, chairman of the DVD Entertainment Group and executive vp, worldwide for Philips Entertainment Group during a press conference at last month's Consumer Electronics Show.

Well over 5,000 titles are currently available on DVD and the number of titles is expected to increase to 8,500 by next year, according to the DVD Entertainment Group.

Widespread availability of DVD hardware and software at popular prices are key factors in the early, overwhelming success of the format.

In addition to all of the major consumer electronics retailers, all three of the leading discount retailers as well as the leading warehouse club retailers are selling DVD software and hardware.

There are more than 70 different players models under more than 30 different brands currently available, less than three years after the format's initial introduction.

The rapid decline in DVD hardware price points also played a key role in the rapid growth of the format. According to market research firm Intellect ASW, the average price of for a DVD player sold in November 1999 was $298, down 30% from an average price of $428 for players sold during November 1998. Players often sold for $200 or less during the 1999 holiday selling season, and very few models even came close to the hardware's $700 opening price point range of a few years back.

The consumer electronics and entertainment industries are uniting again to push DVD video to even greater heights during 2000. the DVD Entertainment Group expects DVD video player shipments will increase to 8 million units in 2000, and DVD video's the household penetration in the United States will exceed 10%.

Sales of DVD software have been strong in the wake of the better-than-expected hardware sales. DVD video brought the Hollywood studios and music labels more than $2 billion in revenue in 1999, according to estimates from the DVD Entertainment Group.

Almost 100 million units of DVD movie and music video software shipped last year, with nearly half this amount being shipped to retailers in the fourth quarter, according to figures compiled by the accounting firm Ernst & Young for the DVD Entertainment Group. In the fourth quarter of 1999, DVD software shipments were up four fold from the same period in 1998.

DVD software shipments have reached more than 130 million units since the format's initial introduction. Industry executives expect at least 200 million units will be shipped in 2000, representing studio revenue of more than $4 billion and amounting to about half of the revenue currently generated by sell-through priced VHS home video.

"This year, we began to see initial shipments of one million software units," said Paul Culberg, president of the DVD Entertainment Group and executive vp worldwide of Columbia TriStar Home Video.

The growth of DVD format is expected to accelerate over the next year with the introduction of DVD audio and DVD-ROM computer software and games, and the anticipated introduction of recordable DVD will only add fuel to the fire. Retailers can certainly expect the demand for digital to remain strong.