While Hollywood studios and the motion picture industry are trumpeting the new box office record of $9.4 billion in 2002, the real story is that sales (not including rentals) of DVDs and VHS tapes reached a total of $12.4 billion, some 25% more than the box office total.  Sales of VHS tapes in 2002 were down almost 30% to $3.5 billion, but this decrease was more than offset by a whopping 65% increase in sales of DVDs.  At least 50 million American homes have DVD players and that number is still expected to grow considerably during 2003.  By next year DVD sales will more than eclipse box office revenues.


What does this mean -- other than almost all retailers should be out of the VHS business (something we have been advising for the past 16 months here at ICv2)?   The key point is that profit margins on DVDs are so high in comparison to their share of box office revenues that we can expect more expensive and more elaborate marketing campaigns to sell DVDs in the future, especially as competition heats up in the pre-holiday season when the summer movie blockbusters are released.  Retailers may indeed finally see a 'second wave' of interest in certain movie properties with heavily marketed DVDs.  In addition a maturing DVD market can provide opportunities for savvy retailers as DVD backlists become too large for mass market discounters to keep in stock.  Some retailers will be able to find a niche (with genre films and TV series) that fits their customer demographic, while others may find it profitable to deal in used DVDs.  With the DVD format still in its infancy and much of the studios' libraries not yet released on disk, the next few years should see enough growth to provide opportunities that aren't readily apparent today.