Essays24.com - Term Papers and Free Essays
Search

Blockbuster

Essay by   •  May 1, 2011  •  1,624 Words (7 Pages)  •  1,135 Views

Essay Preview: Blockbuster

Report this essay
Page 1 of 7

A maturing market

Market growth slowed in 2004 and reached $31 billion, and it is forecast to decline slightly in 2005 to $30.2 billion, after averaging around $3 billion in annual increases between 2000 and 2003. Up to 2003, market advances were due to rising penetration of DVD hardware, however, as penetration reaches over 80% of households in 2005, and late hardware adopters purchase less software than early adopters, the market is maturing. Price declines are also contributing to slowed growth presently, but over the long term may be the key to driving demand and growth.

DVD sell-through carries majority of the market

In 2004 the sell-through category accounted for 63% of the market; DVD sales were 52% of the overall market, while VHS sales were 11%. The rental category makes up the remaining 37% of the entire market, with DVD accounting for 26% and VHS nearly 11%. These figures reflect the shift in the market away from VHS and rentals, and towards DVD and sell-through. As evidence of the strength of DVD, most mass merchandisers have discontinued sales of VHS.

Increases in hardware penetration drove sales

Hardware ownership remains the primary driver for sales and rentals of video software. VCR penetration has remained static at over 90% of households, while DVD player ownership (market-entry hardware now retails for as little as $40) quadrupled to 39% penetration from 2000-02 and nearly doubled to 72% in 2004. Home theater audio hardware penetration nearly doubled between 2001 and 2004, further encouraging home video viewing.

Demographic and economic factors positive for market

As DVD technology tends to be the domain of younger consumers, the fact that those aged 15-34 are projected to increase by nearly 7% between 2000 and 2010 has been and will continue to be a boon for the market. That ethnic youth are also forecast to increase in number is likewise positive, with ethnic consumers purchasing DVDs more frequently than white consumers.

The number of U.S. households with income above $75K has grown more rapidly than other household income groups, some 15.6% between 2001 and 2003, a boon for the industry as this group typically has the highest leisure expenditures including DVD ownership and purchase.

Tightly controlled supply stream

As the majority of video sales stem from theatrical release films, Hollywood studios control an overwhelming percentage of the market. Estimates for 2005 put over 93% of the supply structure under the control of eight studios: Warner Bros., Buena Vista (Disney), Universal (Vivendi), Fox, Columbia (Sony), Paramount, MGM (Sony), and Lion's Gate. This is virtually unchanged from 2003. Control of the market by this limited number of suppliers is expected to continue.

Suppliers foot advertising bills

The primary source of publicity for home video releases continues to be the advertising and promotional efforts by a studio for a title's theatrical release, and to a lesser extent for the title's DVD release. While video retailers spend considerable amounts on advertising, that amount still pales compared to that spent by studios. For example, according to Brandweek, Blockbuster spent $37 million total on advertising in 2004, compared to the over $30 million DreamWorks spent marketing the DVD release of Shrek II alone that same year. The average amount a studio spends on a high-profile home video title release is increasing annually, and may eventually near the amount studios spent on the theatrical release.

Wal-Mart, Target, Best Buy, Blockbuster head distribution

According to Mintel's analysis of the results of the Simmons Fall 2004 NCS, over four in ten adults and teens shopped at Wal-Mart for purchases of DVDs, followed by electronics retailer Best Buy, where two in ten adults and teens shopped. Mintel's analysis of Simmons data finds that 72% of those responding report visiting mass merchandisers for video software purchases. Mass merchandisers are able to command a following because they offer software at loss-leader prices to generate consumer traffic--average sales price at mass merchandisers was $15 in Q4 2004, as compared to $18.50 at electronics stores, and over $20 at almost all other channels. Mass merchandisers also gain as a result of high levels of foot traffic--Mintel's research finds that four in ten respondents purchase DVDs or VHS on impulse.

Some 13% of those surveyed cite video specialist Blockbuster as a preferred location for DVD purchases. Blockbuster's popularity, however, is highest with younger respondents--among 18-24-year-olds, 22% purchased at Blockbuster, roughly equivalent to the percentage shopping at Best Buy.

Internet subscription rental service growing rapidly

In just one year (August 2004-July 2005), Blockbuster's online rental service has grown to 1 million subscribers. Its main online service competitor, Netflix, has 3 million subscribers; both online services are reported to have gained the same number of subscribers over the last year. Netflix forecasts subscriptions of 4 million by year-end 2005; estimates for Blockbuster are 1.5 million. Online subscriptions should bring in over $1 billion in sales in 2006, and account for some 10% of the entire rental market.

However, rental sales in general are down in 2005, dropping some 10% from 2004, from $11.5 billion to $10.3 billion. Declines in rental revenue prompted rental market leader Blockbuster to institute a no-late-fees policy, in 2005. Mintel finds that 43% of respondents rent from Blockbuster, but the brand has a stronger hold on 18-24-year-olds, 54% of whom rented from Blockbuster.

Three-quarters of consumers participate in the market

Roughly three-quarters of consumers participate in the market, renting or buying at least once a year. Participation decreases with age, with over 90% of teens participating, as compared to only half of over-65s. Participation increases with income, rising from 57% of households with income under $25K to over 80% of households above $75K in annual income. Households with children present are also more likely than households without children to participate.

Most consumers buy between four and 12 DVDs and rent roughly 28 DVDs annually. Movies are the most preferred type of content, followed by children's

...

...

Download as:   txt (10.2 Kb)   pdf (122.2 Kb)   docx (12.6 Kb)  
Continue for 6 more pages »
Only available on Essays24.com