WHAT PEOPLE BUY: PRERECORDED VIDEOS, MUSIC, DVDS, ETC.

In the 2003 survey, the category of prerecorded videos, music, DVDs, etc. dropped out of first place as the most widely purchased entertainment product to second place after books, magazines, and newsletters. In the most recent year, prerecorded entertainment media were purchased by 62 percent of households, down from 79 percent in 2001. This category has been negatively impacted by Internet-based services that allow consumers to download their favorite music, giving consumers the new ability to program their own musical entertainment experiences without having to buy prerecorded media. The ability to select and custom program one's own entertainment is a strong draw to many consumers.

Industry Snapshot

Total retail sales of prerecorded videos and music reached $32.9 billion in 2002, up 11.7 percent from 2000's level of $29.5 billion (see Figure 7.13). Technological changes account for the ups and downs of sales in this product category. As digital DVDs replace analog prerecorded videos as the consumers' media of choice for home entertainment, consumers are also using the Internet to transfer music to their home systems without paying producers royalties. Due to these shifts, retail sales of both prerecorded videos and music recordings are down. But because retail sales of DVDs have tripled since 2000, the overall prerecorded entertainment category has continued to grow.

	2000	2002	% CHG '00–'02
Total Personal Consumption in billions	$29.47	$32.92	11.7
DVDs	3.95	13.16	233
Videos	11.20	7.15	-36.1
Music	14.32	12.61	-12.0
Source: Motion Picture Association of America, Recording Industry of America, Unity Marketing

Figure 7.13: Prerecorded Media Industry Snapshot

There is still tremendous room for growth in the sales of prerecorded DVDs. While penetration of videocassette recorders (VCRs) today stands at 91 percent of all television households, DVD players are only available in 36 percent of TV households, or 38.8 million out of the nation's 106.7 million television-equipped homes. As the price of DVD players has dropped to an average of $140, shipments of DVD players to dealers are rising exponentially. In 2000, the Motion Picture Association of America (MPAA) reported that 8.5 million DVD players were shipped. The number of DVD players shipped more than doubled by 2002 when 17 million units were delivered to retailers.

Once consumers get their new DVD players home, their appetite for movies to play on DVD is quickened, so the studios are responding with more new titles. Today some 20,000 titles are available on DVD, up from 8,500 in 2000. And an astonishing 685 million prerecorded DVDs were shipped to retailers in 2002, nearly four times as many (182.4 million) as were shipped in 2000. With an estimated average price of $20.78, the U.S. market for prerecorded DVDs totaled $13.2 billion at retail in 2002.

While the story of prerecorded DVDs is up, up, and away, the now-obsolete video market is on the decline. During the 1998 sales year, shipments of prerecorded videocassette titles peaked at 657.8 million units. It's been going down ever since, reaching 433.2 million in 2002. With an estimated average retail price of $16.50, the total market for prerecorded videocassettes was $7.15 billion in 2002, according to data from the MPAA.

Retail sales of recorded music on all media plateaued in 1999 at $14.6 billion in retail sales, according to statistics compiled by the Recording Industry Association of America (RIAA), and have been sliding ever since. In 2002 retail sales of music was $12.6 billion, a drop of 13.5 percent overall. Much of the decline in retail sales is attributed to what the industry calls "piracy" (i.e., the illegal downloading and sharing of music files from the Internet). The industry today is taking aggressive legal action to put an end to this practice. Over 90 percent of the industry's sales are attributed to CDs.

Retail Overview

For prerecorded videos and music, discount department stores are the most popular destination, visited by 63 percent of consumers in the past year. This is followed by electronics and appliance stores, shopped by 54 percent of consumers. Sporting goods, hobby, book, and music stores came in third, with 34 percent of consumers making these stores their destination to buy prerecorded media. No other traditional store category was chosen nearly as often as these three.

Nonstore retailers, including Internet, catalogs, and TV shopping, are taking a bite out of traditional stores for these products. Nearly one-fourth of shoppers (23 percent) bought prerecorded entertainment media from nontraditional retail outlets.

The big story in the retail market for prerecorded videos, music, and DVDs is the shift out of specialty outlets devoted to either video or music media into mass merchants and discounters that stock the latest releases at discount prices. For example, the RIAA reports that 2002 was the first year that more music purchases were made at non-music-only stores, like mass merchants and electronics specialty stores. On the other hand, record store purchases decreased to 36.8 percent in 2002.

For the video retailers, the loss of video rental revenue is hurting their bottom line because more shoppers opt to buy, rather than rent, videos and DVDs as retail prices decline. While the national chains like Blockbuster are holding their own against the discounters like Wal-Mart, Target, and Best Buy, who offer new releases for $16 as opposed to Block-buster's $20, smaller, independent mom-and-pop video stores are closing in unprecedented numbers (see Figure 7.14).

	2002 SALES
Blockbuster (8,500 stores)	$5.56 billion
Musicland Stores/Sam Goody (1,195 stores)	1.89 billion
Hollywood Entertainment (about 1,800 stores)	1.5 billion
Trans World Entertainment (850 stores)	1.4 billion
MTS/Tower Records/Video (120 stores)	983 million
Wherehouse Entertainment (about 150 stores)	604 million
Virgin Entertainment (about 25 stores)	300 million
Source: 2002 Directory of Computer & Electronics Retailers by Chain Store Guide

Figure 7.14: Prerecorded Media Market Share Leaders

Blockbuster, with more than 8,500 stores and 48 million customer accounts, is exploring the strategic advantage that having movie titles for rent gives them over discounters. Their new marketing program called "Rent It! Like It! Buy It!" offers renters a previously viewed version of a DVD for only $9.99. They also offer a free rental with every purchase of a new DVD and are testing a flat rate for unlimited 30-day rentals. The company has ambitious goals: To become the customers' complete source for movies and games in the format of their choice—rental or retail, new or used.

Purchase Drivers

While new competition is appearing from the Internet and various services that permit downloading of music, in the movies category consumers continue to want the added convenience of owning prerecorded DVDs and videos, rather than renting them in the video stores. "I always forget to take our videos back to the rental store. I end up spending more on rental than I would if I just bought the tape," one focus group respondent confided. Besides convenience, many consumers want to keep up with technological advances, which bring better quality recordings and improved pleasure. Entertainment and pleasure are essential benefits this category provides. Music especially influences mood, so it offers emotion-moderating effects. Finally, children are major users of prerecorded music and videos. For them, repeated watching and listening is a pleasure, whereas adults often get bored with frequent viewing.

Most families consider entertainment DVDs, videos, and recorded music an indulgence, but not too extravagant. The barriers against continued purchase of the category are falling as prices moderate, and the desire to save time and be more efficient makes buying, rather than renting a video or DVD, a more attractive option.

Demographic Variables

The purchase of prerecorded entertainment media is a gender-neutral category with just about as many men purchasing these products as women. This category strongly skews toward a more youthful audience, with the youngest consumers the most likely to make a purchase in this category. Purchase incidence steadily declines with age.

Household income level is an important predictor of likelihood to purchase prerecorded videos and music. Purchase incidence of products in this category dramatically increases among households with income of $35,000 a year and above. Purchase incidence also increases steadily with education level.

Household size is a key to purchase incidence. A household with three or more people and one with the presence of children is an important predictor of purchases in this category.

Key Demographics of Buyers of Prerecorded Videos, Music, and DVDs.

• It is a gender-neutral market.

• Skews toward a youthful market, with purchase incidence declining with age.

• Household size and presence of children are strong factors pre-dicting purchase.

• Rising income and educational levels favor purchase.