Server: Netscape-Enterprise/2.01 Date: Fri, 19 Dec 1997 02:48:06 GMT Accept-ranges: bytes Last-modified: Thu, 19 Jun 1997 20:06:03 GMT Content-length: 7470 Content-type: text/html DCT - Industry News

Reality Check!

Despite all the DVD hype, videocassettes are
alive and well, and will be for a long time to come.

Written By: Hugh Coppen

All the talk about the imminent demise of videotape has been going on for years, and most of it comes from hardware manufacturers who are trying to hype their latest new format to replace videocassettes. In the last 10 years, VHS has survived its widely predicted death, first at the hands of 8mm., then Super VHS, then the reincarnation of Laserdisc, and now DVD! And each year, more VHS videocassettes go on being made and sold than ever before.

These are the key industry facts:

Continued growth in the industry will be propelled by steadily increasing consumer demand for entertainment programming. Obviously the major motion picture studios play the major role in this market. For example, the combined sales of just two titles, “Toy Story” and “Independence Day”, both of which will be released to sell through this fall, are expected to exceed 50 million units. But the growth in entertainment video is not limited to the majors. The consumer appetite is opening up new marketing and distribution channels for an ever widening range of product. One of the most striking things evident at the recent VSDA convention was the “fragmentation” of the industry in terms of the number of companies offering video programming for sale to the consumer. Every year there seem to be more and more suppliers offering an ever-wider range of product. Even major retailers such as Blockbuster are getting into the act by packaging public domain movies under their own label.

Entertainment isn'’t the only genre of programming that'’s growing. With the high household penetration rates of VCR’s, videocassettes are becoming increasingly used for marketing, promotional and information purposes. For example, last year one major advertiser did a consumer promotion involving 9 million videocassettes. The growing use of video by advertisers and marketers will continue for as long as the VCR is the dominant in-home playback vehicle.

What about the future? DVD seems certain to be a format to be reckoned with - if only because Sony and Warner say it will! But DVD'’s trumpeted fall 1996 launch stalled, and before it even gets off the ground, it has some huge hurdles to clear. In particular, there is the major issue of copyright protection which will need to be resolved before most software manufacturers are going to commit to DVD. And there are still unsettled standards issues among competing DVD formats.

The reality is this. The future of videocassettes will only be seriously threatened when all of the following criteria are met:

  1. The new format offers a clear benefit to the consumer, and no disadvantages (e.g. recordability)
  2. Hardware is available, priced competitively with the VCR
  3. Software is widely and affordably available.

The average consumer sees nothing wrong with VHS - in fact, in consumer research done a few years ago, it was found that consumers have a hard time distinguishing between good and poor video quality on their home equipment - and they'’re satisfied with what they have. To get any visible benefit from DVD, or any digital format, the consumer is going to have to also buy a new TV, ideally the not-yet-marketed HDTV. How many consumers are rushing out to put down at least $1,500 when they can get a new VCR for $300? And, even when the obstacles to DVD are cleared, where is the evidence that says that this will be the first new technology to penetrate more than 25% of households in its first 12 years of existence, which no new product in history has ever done before?

There is also good evidence which points to the conclusion that the technology which eventually kills off the VCR (and sooner or later something will), will not rely on portable software like videocassettes or DVD at all, but on digital signal distribution direct into the home. But the exact technology and the huge investment for this to become the replacement of the VCR is still a long way off.

The most realistic forecasts (that is, those NOT those put out by hardware manufacturers trying to achieve their goals by hot air and wishful thinking) indicate that the demand for videocassettes will continue to grow, although at a flattening rate, until about 2005. After that, some new format or technology, which could be DVD and/or digital signal distribution or even something else, will probably have enough penetration to start to erode videocassette sales. By then, annual sales of videocassettes will have exceeded 1 billion units, so even if the erosion is at the unprecedented rate of 20% per year, demand for videocassettes will still be the same in 2008 as it was in 1995!

The conclusion is that we all know we are in a business that will eventually become obsolete. But it says here that it won'’t be for at least 10 years, during which time we have the opportunity to identify and establish new revenue streams while fully depreciating all our videocassette duplicating equipment. Videocassette duplication is a tough, competitive business, but it is thriving and growing, not dying, despite all of the years of hype from the promoters of one new format after another.

Questions or comments about this report? Contact industry@dct.net