Demand for DVDs rockets

By BBC News Online's Emma Clark

Last month, sales of DVD players in the US outstripped videos for the first time, according to market research firm NPD Intelect.

Figures of this kind have made 2001 the breakthrough year for the Digital Versatile Disk, and this Christmas it is tipped to become the number one gift in the US.

US sales of DVD players

1998: 798,000

1999: 3.1m

2000: 6.4m

2001: 13m (estimate)

Source: NPD Intelect

Since a lukewarm launch in 1997, demand for the DVD has skyrocketed, making it one of the fastest-growing consumer appliances ever.

The amount of DVD players sold both in the US and Europe has virtually doubled year-on-year.

Bumper sales

NPD Intelect, a subsidiary of the market research firm GfK, believes 13 million players will have been sold in 2001, up from 6.4 million in 2000.

In the UK, a projected 1.5 million have been sold this year, up from 712,000 last year.

UK sales of DVD players

1998: 18,000

1999: 187,000

2000: 712,000

2001: 1.5m (estimate)

Source: GfK

Ironically, last Christmas could have made 2000 the bumper year for DVD sales, had it not been for problems with supplies from Chinese manufacturers, says Tom Edwards, an analyst at NPD Intelect.

Fears early in 2000 that manufacturers might not pay royalties or licensing fees discouraged US retailers from placing massive orders for Thanksgiving and Christmas trading, he adds.

This year such problems have been resolved and retailers have made DVD players the key promotional item to pull consumers into the stores.

Corporate bonanza

Already, the success of the DVD format has boosted the bottom line of companies that sell DVD software, such as AOL Time Warner and HMV Media Group in the UK.

DVDs at home

25% of US homes have a DVD player

10% of UK homes have a DVD player

Source: GfK

In results last week, HMV reported that strong DVD sales contributed to a 21% jump in profits during August to October.

"[HMV Europe] has increased market share in all major categories, including the fast growing DVD sector," said chief executive Alan Giles.

Meanwhile AOL saw sales of DVD software climb by 96% in the three months ending on 30 September, compared with the same period last year.

DVD sales have driven HMV profits

While demand for videos holds up - sales of video recorders slipped only slightly in the last year - DVD software provides an extra source of revenue for such companies.

Consumers, it seems, are happy to collect DVDs and use them alongside their videos.

The right price

John Binks from GfK in London says the key reason for the DVD's popularity is its price.

"Unlike other consumer electronics products, the price of DVD players came down very quickly," he says.

Unlike other consumer electronics products, the price of DVD players came down very quickly

John Binks
GfK

When they launched, the minimum retail price was about $600 (£420). Now they sell for between $150 and $175.

Special offers during the US Thanksgiving holiday saw them on offer for as little as $68.

"They have hit the price point," says Steven Gaydos, executive editor of Variety magazine in London.

High profile

But it is not price alone that ensured the success of the DVD, says Mr Edwards of NPD Intelect.

There was so much promotion [of DVDs]. It was everywhere - on the radio, on TV and in the newspapers

Tom Edwards
NPD Intelect

In 1998, a war between US retailers Circuit City and Best Buy pitched DVD technology against a rival DivX system.

A massive advertising campaign undertaken by Best Buy and retailers in its camp to back the DVD drove awareness and turned it into a US household product.

"There was so much promotion," says Mr Edwards. "It was everywhere - on the radio, on TV and in the newspapers."

He believes that the slew of advertising advanced sales by about three to five years.

Home movies

The added attractions of DVD software, including interactive features and directors' cuts, have provided a strong incentive for consumers to switch over from the video format.

"The DVD is part of the home theatre phenomena," says Mr Binks.

"You have your 16 x 9 television in your living room, you have Dolby surround sound and you watch films on DVD."

Variety's Mr Gaydos believes that DVD will become the dominant format within 36 months - and with sales booming this could be a conservative estimate.

Caveats

However, there are uncertainties clouding the DVD's rosy future.

Like Betamax versus VHS, there is a war between formats. As soon as the war is over, videos will be over

David Newman
Schroder Salomon Smith Barney

First, the relative expense of buying a recordable DVD player - which currently costs more than £1000 - may be putting off UK consumers who enjoy recording material off the television.

Cultural differences in the US means this is less of an issue on the other side of the Atlantic.

In addition, the different DVD formats are likely to slow sales, says David Newman, an analyst at Schroder Salomon Smith Barney.

He believes the video format will exist alongside DVDs while there is indecision over which format will become the standard.

"Like Betamax versus VHS, there is a war between formats. As soon as the war is over, videos will be over," he says.

Broadband threat

The final issue is the advent of broadband and the possibility of downloading videos from the internet.

With cheap and available broadband, DVDs could become obsolete.

However, question marks hanging over the widespread roll-out of high-speed broadband will likely ensure DVDs a future for some time to come.

"There will be a threat, but how long will it be until that happens?" asks Mr Newman.

Future growth

Inevitably, however, the rate of growth in the DVD market will slow as the format becomes more entrenched.

Currently about 25% of US homes have a DVD player, compared with 10% in the UK.

In 2002, Mr Edwards is predicting player sales of 20 million in the US, with an annual growth rate of about 50% - considerably slower than 100% in 2001.

But there is still room for plenty of growth in Europe, particularly if the recordable DVD becomes more affordable.

With the prospect of recording your favourite soap operas with surround sound and high-quality pictures, who could ask for more?