Blockbuster fast-forwards its inventory

Fewer tapes means more room for DVDs

September 11, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Blockbuster Inc., the nation's largest video rental chain, said yesterday that it will cut a quarter of its VHS tape selection to make way for more DVD titles, reflecting consumers' growing appetite for the more cutting-edge technology.

Between Thanksgiving and Christmas, customers of Blockbuster's 7,800 stores will start to see more space devoted to DVDs and new video games as well as cleaner, better-organized stores, the company said. The library of videocassette tapes - not including new releases - will shrink from about 8,000 to about 6,000 per store, based on those titles that rent infrequently.

"This is a consumer-driven initiative, taking advantage of DVD's rapid acceptance and rapid acceleration of DVD rentals at our stores," Karen Raskopf, a spokeswoman for the Dallas-based retailer, said yesterday.

Sales of DVD, or digital video disk, players have shot up since 1997 as consumers have embraced a format offering higher-quality pictures and sound and more viewing options than video cassettes.

DVDs offer features such as outtakes from movies, interviews with directors and, in some higher-end players, the ability to zoom in or out, change scenes and look at extra material, all with a remote control.

About 20 percent of households with televisions now have DVD players, and that is expected to grow to 25 percent by the end of the year, says the Arlington, Va.,-based Consumer Electronic Association.

"We have seen explosive growth in DVDs," which are now the fastest-selling product in the consumer electronics category, said Jenny Miller, a spokeswoman for the association. DVD sales grew from 350,000 in 1997, the first year the trade group tracked sales, to 1 million in 1998 to 6.2 million so far this year, through the end of last week, Miller said.

"It's sort of like CDs versus cassette tapes," said Ed Hatch, a managing director of SG Cowen Securities Corp. in New York, who follows Blockbuster's stock. DVDs offer "instant access to portions of the program and the ability for movie companies to add extra scenes. It's more consumer friendly."

DVDs, Hatch said, "are certainly heading to be a mass market device. We're in the transition period right now, where consumers will be buying more or renting more DVDs at the expense of VHS tapes. Blockbuster's move [to cut VHS inventory] was in recognition of this transition period."

Sales of DVD players have skyrocketed as prices have dropped drastically. The product that sold for $491 on average in 1997 sells for an average $193 today but can cost much less, Miller said.

At Circuit City, for instance, consumers can buy DVD players starting at $99.

"The prices tend to come down as the technology matures," said Bill Cimino, a Circuit City spokesman. But advanced technology has also brought additional DVD features, he said, such as a new format designed specifically for digital televisions and DVD players that hold five discs and double as CD players.

For Nathan Winslow, 27, who was checking out new DVD titles yesterday at Blockbuster in Hampden, DVD is the only way to watch a movie at home - hooking the player up to a 36-inch TV with surround-sound speakers that put viewers in the middle of the action.

"You can't get better than digital," said Winslow, who rents every new movie he sees at the theater. "I like that movie feel."

In its announcement yesterday, Blockbuster said it will take a mostly noncash charge of about $450 million to thin out its VHS inventory and some video games and lower the value on its books of all VHS tapes and games. Blockbuster will record a $400 million charge in the third quarter and a $50 million charge in the fourth quarter, which ends with the calendar year.

Blockbuster said its DVD rentals, which account for 20 percent of its sales, will likely grow to 50 percent of sales by 2003 or 2004.

The chain expects DVD rentals to be more profitable than video cassette rentals because discs cost less per unit to purchase. That's because Hollywood studios have traditionally sold the cassettes at "rental" pricing, about $65 or $75 per tape.

Even when Blockbuster entered revenue-sharing agreements with the studios several years ago, allowing the chain to pay lower up-front fees but share the rental revenue, the margins stayed about the same.

The company expects improved rental margins as DVD rentals contribute more to sales.

"We believe this is the opportune time to capitalize on the continuing explosive growth rate of DVD," John Antioco, Blockbuster's chairman and chief executive officer, said in a statement yesterday.

"The format has clearly gone mainstream, and consumers are demonstrating that they prefer to rent rather than buy their movies."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.