Video rental chains and retailers are set to keep a wary eye on the
market effects of the impending digital onslaught.
The digital launches of British Sky Broadcasting and ONdigital later
this year could result in the carve-up of the video market, resulting in
loss of share for rental chains and retailers.
However, both rental chains and retailers believe that if the new
digital versatile disc (DVD) becomes the established alternative to VHS,
the benefits of renting or buying videos will remain attractive, despite
the alternatives offered by digital broadcasting, such as video on
demand and film pay-per-view services (PPV).
The biggest immediate threat to the sector comes from BSkyB. The
broadcaster’s new digital movie channel will feature 11 channels,
divided into three themed segments: Premier, Movie Max and Cinema. Each
is designed to appeal to a different taste, from classic to gore.
It will also increase its PPV service, Sky Box Office, to 12 movies per
evening. The PPV movies will be available for pounds 2.99 per film, the
average price of a new video release. And by using near-video-on-demand
technology, films will begin every 15 minutes, so a viewer can watch a
chosen film at almost any time.
However, the British Video Association firmly believes that such
offerings will not significantly affect the sector. A spokesman for the
organisation said BSkyB’s films would already have been available on
video for six months.
Video versus television
This is a crucial point and it could go some way to offsetting the
impact of digital. A film can be watched on video six months after its
cinema release, but it is a year or so before the films make it onto
BSkyB is trying to change this. It has reportedly been approaching film
distributors with an ’open cheque book’ in an attempt to get early
access to films.
However, distributors remain unwilling to play ball with very successful
films. To do so would mean losing a potentially large revenue stream
from the video outlets. From the time a film is released at the cinema,
the market shrinks. In descending order, the main sources of revenue are
cinema box office sales, video rental, video retail, television showings
and general library sales. From cinema straight to television would
result in large losses.
The amounts that can be made by distributors are typified by a pounds
3.5m UK marketing campaign designed to raise awareness of the video
availability of Titanic, due to be released in five months. A
blockbuster can make all the difference to video sales and rentals. Once
customers are lured into the store for the blockbuster, they tend to
rent other movies.
Another disadvantage for BSkyB is that many analysts believe maximum
subscription penetration has been achieved and that its digital launch
is unlikely to increase subscriptions. Over the past few years the
penetration rate has remained at around 27% of UK homes.
Recent research by Media Vision Research has also revealed that cable
and satellite viewers spend more time watching videos than ’free-to-air’
Figures from BARB indicate that over the past three months, viewers in
pay-television homes spent one hour and 41 minutes watching videos,
compared with one hour and 25 minutes in ’free-to-air’ homes.
Piers Skinner, marketing manager at Blockbuster, the UK’s largest video
rental chain, says a large number of its customers are also BSkyB
subscribers, which suggests video has received a boost from cable and
Certainly the video retail sector has increased in line with the growth
of satellite and cable. Video sales in 1997 totalled pounds 8.5m,
compared with pounds 5m in 1992. However, digital may affect this, given
the superior transmission quality.
Disc takes off
Skinner believes that if DVD becomes an established alternative to VHS
it could help beat off the threat from planned services such as
The early signs are that DVD could do well. After a soft launch in May,
sales at both HMV and Virgin have been ’encouraging’.
If the format does become established, it would mean the gradual
replacement of VHS tapes with DVD.
Rob Edwards, a video and DVD buyer at HMV, believes DVD will probably
become established in less than ten years. Almost certainly ONdigital
will take some time to become established and DVD is expected to help
the video industry keep pace with digital television.
Meanwhile, the retailers are hanging fire on any strategic decisions and
believe it is too early to assess the impact.
Video sales 1997
Supermarkets have increased their grip on the video sales market in
Company Share (%)
WH Smith 11