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ANALYSIS DVD bucks the downturn in packaged entertainment

European consumers spend more on buying DVD than any other packaged media – DVD retail went up 10% last year, while music and games sales were down. The type of sales channel used by consumers varies considerably from country to country, according to a research by Screen Digest who looked at the five key Western European territories: France, Germany, Italy, Spain and the UK.

Although total consumer spending on home entertainment retail (music, video and games) in the top five European markets has fallen slightly in the past few years, DVD retail growth has remained strong. The analysis indicates that whilst games spending remained flat in 2004 and audio sales actually fell slightly, spending on DVD retail managed to show a growth of over 20 per cent.

What is more, DVD reached an important milestone in 2004 as this was the first year in which spending on retail DVD exceeded spending on recorded music. In fact, consumers spent more on DVD retail in 2004 than on either music or games. In the top five countries over €7.6bn was spent on retail DVD, compared with €6.5bn on recorded music, €4.3bn on games and just €0.7bn on VHS.

According to Screen Digest's forecasts and the preliminary estimates from the International Federation of the Phonographic Industry (IFPI), DVD will have continued to be the most popular form of packaged media by the end of 2005. Projections point to DVD spending in the big five countries to grow by a further 10 per cent in 2005 to €8.2bn, whilst games and music spending will fall by three and five per cent respectively.

Direct supply

All video product in the big five markets is supplied by one of two methods: a) direct supply from the distributor (usually through one of its physical distribution partners) or b) wholesale supply by a third party.

In general larger video retail chains tend to go direct to the distributors, leaving the smaller chains and independents to the wholesalers (although there are some exceptions). It is generally accepted that direct supply gives the distributor a better margin, but Screen Digest research indicates that the cost to deliver product into very small retailers means that it is not always worth the distributor establishing direct accounts.

In some cases distributors are actually believed to be downsizing their customer base in order to avoid the additional costs involved. The analysis suggests that the proportion of direct supply is smaller in the UK and Germany than in other European markets (32 per cent and 63 per cent respectively).

This is partly due to the fact that these figures do not include the proportion of the market that is supplied direct through VMI accounts – which represent a significant proportion of total DVD distribution in these territories. Furthermore, in the UK, there are a number of large wholesalers that provide third-party distribution for some of the key retailers.

Vendor-managed inventory (VMI)

As the DVD market has matured, the manner in which DVDs are delivered to retailers has evolved. One of the most important developments in this process has been the introduction of vendor-managed inventory (VMI) systems to some direct account customers.

Put simply, a VMI system allows the stock level of titles to be maintained through the exchange of shipment, stock-in-hand and electronic point-of-sale (EPOS) data between the retailer and the distributor. If the stock level of a title is running low, or if a title is failing to sell fast enough to justify existing stock levels, the VMI system will automatically adjust orders without the retailer having to manually oversee the process.

The goal for both the distributor and the retailer is to synchronise consumer demand with stock levels so that the retailer has sufficient stock in store of the titles that the consumer wants to buy.

Some studios have already invested quite heavily in systems and processes that will make the introduction of VMI easier to implement in-store. However, they are only likely to pursue this strategy with retailers large enough to make the process cost-effective. Warner is the studio most heavily involved in VMI but Fox, Universal, Paramount, Sony and Disney are also active.

In both Germany and the UK, VMI distribution is fairly well developed with 25 per cent and 15 per cent of all DVD shipments being distributed by this method in 2004 respectively. There is also a small proportion of VMI distribution in Italy and Spain. However, in France this method of distribution has yet to take off.

Story filed 20.02.06

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