Blockbuster

A maturing market

Market growth slowed in 2004 and reached $31 billion, and it is forecast to decline slightly in 2005 to $30.2 billion, after averaging around $3 billion in annual increases between 2000 and 2003. Up to 2003, market advances were due to rising penetration of DVD hardware, however, as penetration reaches over 80% of households in 2005, and late hardware adopters purchase less software than early adopters, the market is maturing. Price declines are also contributing to slowed growth presently, but over the long term may be the key to driving demand and growth.

DVD sell-through carries majority of the market

In 2004 the sell-through category accounted for 63% of the market; DVD sales were 52% of the overall market, while VHS sales were 11%. The rental category makes up the remaining 37% of the entire market, with DVD accounting for 26% and VHS nearly 11%. These figures reflect the shift in the market away from VHS and rentals, and towards DVD and sell-through. As evidence of the strength of DVD, most mass merchandisers have discontinued sales of VHS.

Increases in hardware penetration drove sales

Hardware ownership remains the primary driver for sales and rentals of video software. VCR penetration has remained static at over 90% of households, while DVD player ownership (market-entry hardware now retails for as little as $40) quadrupled to 39% penetration from 2000-02 and nearly doubled to 72% in 2004. Home theater audio hardware penetration nearly doubled between 2001 and 2004, further encouraging home video viewing.

Demographic and economic factors positive for market

As DVD technology tends to be the domain of younger consumers, the fact that those aged 15-34 are projected to increase by nearly 7% between 2000 and 2010 has been and will continue to be a boon for the market. That ethnic youth are also forecast to increase in number is likewise positive, with ethnic consumers purchasing DVDs more frequently than white consumers.

The number of U.S. households with income above $75K has grown more rapidly than other household income groups, some 15.6% between 2001 and 2003, a boon for the industry as this group typically has the highest leisure expenditures including DVD ownership and purchase.

Tightly controlled supply stream

As the majority of video sales stem from theatrical release films, Hollywood studios control an overwhelming percentage of the