by Doug Desjardins
The era of DVDs dominating home entertainment is still alive and well but sales continue to decline as competing delivery methods grow. 
According to the Digital Entertainment Group (DEG), sales of pre-recorded entertainment on DVD – made up primarily of movies and TV shows – dropped 3.3% during the first six months of 2010. And though sales totaled a robust $8.8 billion for the first half of the year, the decline is troubling for an industry that’s in transition.
“Cleary, we are still grappling with a challenging marketplace and a tough economy, but overall trends that we are seeing are encouraging,” said DEG president Ron Sanders.
The primary reason for the decline in sales of retail-based DVDs is the growth of digital downloads. Total spending on downloads during the first half of 2009 was $1.1 billion, up 23% from last year.
DVD sales could decline even further this fall when Best Buy downsizes its DVD sections. Best Buy said that it plans to reformat its stores before the holiday season and carry fewer DVDs to provide more space for notebook computers and tablet PCs. While the reformatting isn’t especially ominous, it’s worth noting that Best Buy was the first retailer to stop carrying videocassettes.
Despite Best Buy’s announcement, DVD and the high definition Blu-Ray format will continue to maintain a strong presence at retail, with market leader Wal-Mart still carrying a large DVD selection in stores.
The DVD retail rental business is facing similar problems. Earlier this year, #2 rental chain Movie Gallery went out of business and in late September, Blockbuster Entertainment filed for Chapter 11 bankruptcy. Blockbuster plans to close up to 1,800 of its 3,000 stores over the next year in an effort to raise $900 million to pay off debt.
Despite the filing, Blockbuster CEO Jim Keyes remained upbeat about the future of its business. “We’ll continue to transform our business to meet the evolving preferences of our customers,” said Keyes. He added that Blockbuster is “a well-established brand name” that is the “only operator that provides access across multiple delivery channels – stores, kiosks, by-mail and digital.”
Jan Sexton, an analyst with Adams Media Research, said Blockbuster is still a viable business with hundreds of profitable stores. “Blockbuster still has lots of profitable locations,” said Sexton. “If they could get out from under their debt load, they could conceivably generate between $400 million and $500 million in annual revenue for movie studios.”
But Blockbuster is no longer the dominant force in video retailing it once was. According to Home Media Magazine, Netflix is now the top video renter with 36 percent of the market followed by CoinStar, which now captures 25 percent of the market with its RedBox rental kiosks. Blockbuster now captures only 22 percent of the market, with the remainder going to small independent retailers.
Resources
DEG Mid-Year 2010 Home Entertainment Report
Best Buy’s Evolving Shelf Space
COUPON TIME
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