Video sales on the rise Lower prices spark increased interest in buying cassettes.

March 10, 1992|By Ed Lopez | Ed Lopez,Knight-Ridder News Service Michael Dresser of The Sun's Business staff contributed to this article.

Once viewed as too pricey, videocassettes are increasingly accepted as something to take home for keeps.

Last year, purchases of pre-recorded videocassettes took their sharpest jump, reaching an estimated market value of $4.6 billion, according to Alexander and Associates, a New York research firm.

Indeed, the company's survey of consumers found that the dollar value of video purchases grew more than 23 percent last year while rentals actually dropped more than 8 percent.

Tom Adams, a video analyst with Paul Kagan and Associates in Carmel, Calif., blamed the weak showing of video rentals last year largely on the Persian Gulf war and the weak economy.

He said that his company's estimates, based on surveys of retailers, showed the video rental business staying relatively flat last year. He projected that "rental growth should be in about the 5 to 6 percent range for the next couple of years."

In contrast, video purchases -- known as "sell-through" in the industry -- are growing by about 15 percent annually.

Sales could be further stimulated as Blockbuster Entertainment Corp., the nation's largest video chain, promotes sales more aggressively. With new store displays and heightened advertising, the Fort Lauderdale, Florida.-based company made a major push into sell-through in the fourth quarter of 1991.

"It's not cannibalistic to our rental business," said Joseph Baczko, Blockbuster's president. "We view it simply as an addition to our business. It's something our customers want."

Video sales at Blockbuster account for about 10 percent of revenues. Eventually, the company wants to match the industry average of about 25 percent of revenues, Mr. Baczko said.

Lower prices have sparked the growth of video sales.

"Originally, the interest in sell-through came from mass merchants, and their interest developed by the lowering of prices by Hollywood on videos that may have originally sold for $80," Mr. Adams said.

A benchmark in sell-through came in 1982, when the Star Trek movie "The Wrath of Khan," sold for $39.95, Mr. Adams said.

Attractive prices for movies, some of which sell for $20 or less, have made consumers more comfortable with the idea of owning a movie. "The Hunt for Red October" was seen at one video store for $16.99.

John Potter, an area manager who supervises six Baltimore-area Blockbuster franchises owned by UI Video Systems Inc. of Denver, said his stores' sales were in line with the national pattern but were not as strong as sales in other regions where UI has stores.

Mr. Potter said the sales success of a popular movie is determined by the studio that releases it. "They make the decision whether it will be a sell-through or a rental title," he said.

Arnold Schwarzenegger's "Terminator 2," for instance, isn't selling much because the studio has fixed the price at almost $100, he said. Disney, in contrast, prices many of its titles at $19 to $25, and sales are strong, Mr. Potter said.

The hot title now, he said, is "101 Dalmatians," which Disney is releasing for a limited time. He added that Disney's buy-it-while-you-can policy has been effective in stimulating demand for its classic titles.

Mr. Potter said that family-oriented films are usually the best-sellers. Other strong-selling titles in the Baltimore area include "Home Alone," "Ghost" and "Robin Hood, Prince of Thieves," he said.

Mass merchants such as Kmart, Wal-Mart and Target have about half of the total market for video sales, according to estimates from Paul Kagan and Associates. Video rental specialists have about 20 percent of the market, another 20 percent comes from direct-mail purchases, and the rest is divided among record stores and other outlets. Other estimates put the market share of mass merchants much lower. Video Store magazine thinks their share dropped to about 33 percent in 1991. One reason is that previously viewed videos have increasingly become a significant part of the sell-through business, according to the publication.

Because of the competition from mass merchants, video retailers have to work harder in their sell-through business, said Amy Interfield, a video analyst at Alexander and Associates.

"Mass merchants can use videos as a loss leader," she said. "They could be selling it for less than what they bought it for."

But video specialists also have some advantages. Many consumers consider video stores the places to go for tapes. Customer traffic is high, and the customers already own videocassette recorders.

Blockbuster's big push came in the fourth quarter because consumers are more likely to buy videos as gifts during the holiday season.

"People rent a movie, see it, then they want to buy it either for themselves or as a gift," Mr. Baczko said. "It's the equivalent of a book, only it's visual."

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