Blockbuster Focusing On DVD

20-Sep-01

In a signal that the DVD format has rapidly won mainstream acceptance, Blockbuster Inc., the nationís largest movie rental firm, said last week that it would sharply reduce the number of videocassettes in all of its 5,500 U.S. stores to make more room for DVDs. The Dallas-based company said it will cut the number of videotapes available for rent by as much as 25 percent. The move will result in a $450 million charge to Blockbusterís earnings this year, the company said. The videos to be removed from shelves in the coming months are among the least popular and account for about 1 percent of all rentals, according to a company spokeswoman. DVDs, which were first sold widely in 1997, now account for about 20 percent of Blockbusterís rental revenue. Chief executive John Antioco said he expects that to increase to 80 percent within six years, given the rapid growth of DVD player sales. In addition to renting DVDs, Blockbuster plans to sell DVD players. However, company executives said they expect videotapes will remain available in its stores for at least another decade. ìWe are not going to try to force you to switch formats,î Antioco said. One reason consumers might hold on to VCRs is that, unlike most DVD players, they can be used to record TV shows. About 86 percent of all homes own a videocassette player, compared with about 20 percent of homes with DVDs. But DVD players are the fastest-growing electronics device in terms of total sales, according to the Consumer Electronics Association, a trade association. Even so, the approximately 12 million DVD players that will be sold this year will fall short of total sales of videocassette players, expected to be 22 million. The average price of a videocassette player is $73, compared with $193 for a DVD player. The move to DVD will allow Blockbuster, which is majority-owned by entertainment conglomerate Viacom Inc., to keep more money from each transaction. Blockbuster entered a revenue-sharing agreement with the studios that own the rights to the films in 1997 to avoid buying every videocassette in its stores. At the time, the tapes sold for as much as $65 for newly released, first-run movies. DVDs average less than $17, allowing Blockbuster to buy them and to skip sharing proceeds with the studios.

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