INTELECT DVD Alert - What Happened To The Ten-Million Unit Forecast?

26-Jan-01

2000 wasn't a ""bust"" for DVD sales in the United States, but it sure was a disappointment.INTELECT went out on a limb early in 2000 and projected DVD sales would reach a ten-million unit rate for the year. It didn't happen!INTELECT's DVD unit sales were 6,625,617 in 2000, an increase of 115 percent above the 1999 level.This was more than double the 1999 sales rate and almost ten times the number of DVD machines sold in 1998.So Why The Disappointment And What Happened?INTELECT Coverage? Not an excuse!- Data from INTELECT is reported and projected for retail sales from stores. Direct sales through the Internet, mail order, catalog, telephone or television shopping are not included.- Institutional, educational, commercial, B2B and military base and post exchange sales are also not included in the data. This could represent an additional ten percent, but it was considered when the original forecast was made.- Mobile players, navigation product and games are not included.The economy? Maybe a slight affect on sales!We saw a slowing trend beginning in August that affected all CE products from computers to televisions. DVD was also a casualty but the economy was only a small factor in the drop from expected sales.Component Shortages? Probably the main reason!Shortages of components and mechanisms actually played only a small part but the ""fear factor"" probably had a considerable impact! Only one manufacturer had sales that were impacted by component shortages for any considerable length of time. The ""fear factor"" impact was probably the key reason that sales did not reach the ten-million mark.More than half of last year's DVD sales occurred in November and December. The same pattern was expected this past Christmas selling season, but at an even higher level.DVD was still a ""new"" technology and was not strongly supported by mass merchants in 1999. Their share of DVD sales was only 10.6 percent. To make a comparison, mass merchants had 54 percent of VCR unit sales in 1999.DVD was expected to be the strong Christmas 2000 ""gift item"" with as much as 75 percent+ of the year's sales expected in the last two months. November and December actually represented only 50 percent of the year's DVD sales. The mass merchants' share of the volume grew to only 25 percent of DVD sales compared to 57 percent in VCR.The ""fear factor"" impact probably came in two versions.CommitmentTo reach those huge expected numbers at year-end, the ""big box"" stores had to have firm commitments from their vendors by February or March in order to finalize their floor layouts, plan-o-grams and advertising schedules. Manufacturers were reluctant to commit to those large numbers because of their ""fear"" of vital component shortages. Manufacturing had to begin in the April/May period to satisfy the year-end requirement. Without firm commitments, retailers may have been forced to plan their holiday promotions around other products. VCR sales were up six percent in 2000. Mass merchants' VCR sales were up 12 percent.LicensingRetailers may have also been concerned that their vendors did not have DVD and MacrovisionÆ licensing for their low priced, promotional product. The ""fear"" that they may be liable for these costs may have been an inhibiting factor.The Future?INTELECT will do it again. We'll look for 12-million unit sales of DVD in 2001.Unfortunately, we were successful with one forecast that we made. We projected that the average selling price of DVD decks would be at the $200 level by the end of last year. December's average was $198.15 and November was even lower with Black Friday, Thanksgiving promotions dragging the average price down to $187.50. We don't even want to think about the average price in December 2001!For more information, contact Tom Edwards at NPD INTELECT Video Market Tracking, 516 625 4821.