Home video industry challenged by new technologies
By Scott Hillis
LOS ANGELES, July 8 (Reuters) - The home video industry, growing again after a recent downturn, is now bigger than ever, but may be threatened by new technologies such as satellite video and the Internet, a trade association said on Thursday.
Americans spent a record $8.1 billion renting movies in 1998, a 9.6 percent rise over the previous year, when spending fell for only the second time ever, the Video Software Dealers Association (VSDA) said in an annual report.
The recovery looks to be real, with 1999 growth expected to top six percent, VSDA President Bo Anderson told Reuters.
Faced with a four percent dip in revenues in 1997, rental stores stepped up their marketing and began stocking more copies of hot new releases last year.
''There has been a bit of a wake-up in the industry. Everyone from the studios to retailers and the distribution chain is working on ways to increase consumer satisfaction,'' Anderson said.
In a speech to attendees at the VSDA's annual trade show here, Anderson lamented the closure of neighborhood video stores
amid aggressive expansion by big national chains, which include Blockbuster Inc., a unit of Viacom Inc. (NYSE:VIA - news),
and Hollywood Entertainment (Nasdaq:HLYW - news).
While national chains opened a total of about 1,000 new stores in 1998, an estimated 2,200 other outlets were driven out of business, according to the VSDA report.
Recent incidents of school violence meant the independent video store, with its close ties to the community, could be a valuable
ally for parents, Anderson said.
''There is no more positive place for parents to exercise control over what their kids watch than in renting from a neighborhood
video store,'' Anderson said.
Anderson forecast the decline of local stores will eventually end. Big chains will guarantee stock of blockbuster movies, while local stores will tailor selections to offer independent or niche films.
But both will come under increasing pressure from a spate of new technologies like satellites that beam movies directly to homes on demand, and the Internet, where upstarts have created new sales and rental businesses.
Up to 10 percent of video sales were conducted online last year, the report said. In addition to hefty discounts, Internet retailers such as Amazon.com can offer niche films unable to find room on the shelves of physical stores.
''In the scramble to establish themselves in the free-wheeling world of the Web, online merchants have generally pursued a strategy of heavily discounting merchandise, often selling video below wholesale cost to attract customers to their Web sites,'' the report said.
Anderson acknowledged the video industry will have to adapt to technology, but said research showing that people enjoy trips to the corner video store made him confident the industry outlook was still healthy.
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