Have retailers got videos taped?

The arrival of three new ways of watching films is likely to lead to an explosion in home-entertainment. But it is also a worry for retailers, because it creates uncertainty as to how they will benefit from the changes.

When digital broadcasting, the Digital Video Disk system and video-on-demand come on stream, there will be a shift away from renting videos, because consumers will dial them up directly from home. The plethora of digital television channels which are about to be launched will mean an increased number of pay-per-view films.

This could present a real threat to many of the 800 Blockbuster superstores, as consumers move away from renting videos. But DVD offers the chance to sell films in a new format, initially offering higher margins. DVD squeezes two hours of motion pictures onto a single CD-sized disk and reputedly offers a much higher quality of picture and sound than video.

But there is uncertainty on the launches of DVD and video-on- demand.

Two of the biggest electronics companies have stalled the launch of DVD in the UK (MW July 24). Both Sony and Philips have postponed the launch, due for this year, until next year. They say this is because Hollywood film studios have not released enough films capable of being shown on the system. “We see no point in launching DVD this year. There is no software to play on it,” says a spokesman for Philips. However, there is no doubt that DVD players will be launched eventually, and the studios will start putting their blockbuster films into the format.

A new Mintel report, In-Home Entertainment Retailing, says that for the video rental market, the central question about video-on-demand is whether the basic proposition will be changed.

For video rental, titles become available around six months after their cinematic release, up to a year before they are available on satellite. If this is tampered with in the cause of video-on-demand, the report suggests the impact could be grave for video rental.

The video games market is also under threat from the “on-demand” services. The launch of British Digital Broadcasting will make more than 200 digital channels available to subscribers, for the price of a 200 digital set-top box decoder. The service also offers access to the Internet, pay-per-view video and the option of downloading and playing video games.

The Mintel report says the take-up of these new systems is dependent on the levels of technophobia among the public, and their willingness to pay out 200 for the decoder. “Retailers remain confident that the browsing element is crucial in the purchase of in-home entertainment – stores such as HMV and Virgin have built their entire store design around providing customers with a shopping experience,” says the report. The shopping basket, it seems, is fighting a rearguard action against the armchair.

According to the report, sales of in-home entertainment products, excluding video rental, came to about 3.3bn in 1996. The market has increased by some 35 per cent overall since 1991 in current price terms, and in real prices, the market grew by 31 per cent during the period. Pre-recorded music sales make up the largest part, accounting for nearly half the market.

Mintel says that there is general consensus in the trade that the introduction of DVD will enhance retailers’ fortunes. The report says: “In the same way that sales of CDs have driven the audio market forward in sales, DVD is generally considered to have the potential to result in a replacement market. Considering the time it has taken for CDs to reach a wide penetration among consumers, it is unlikely that conversion to DVD will be swift.”

All the extra space freed up by retailers selling CD-sized films, rather than more bulky videos, will present another challenge, as retailers will have to fill the space with other products such as T-shirts, books and magazines. The new smaller format will enable supermarkets to increase their in-home entertainment goods without having to sacrifice other product areas.

But the introduction of any new format in music or film can have pitfalls. Will it turn out to be another Beta-max video or Stereo-8 cassette? Its success will largely be out of the hands of retailers, and rests with manufacturers and producers of Hollywood films.

Retailers will be forced to do something they are loathe to do – standing on the sidelines and hoping the market goes their way.