EXHIBIT 99.5
Get the Picture - Video industry - Analysis 2003 Page l of 4
WHAT AUSTRALIANS ARE WATCHING
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VIDEO INDUSTRY
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Home > VIDEO INDUSTRY > Analysis 2003
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THE VIDEO INDUSTRY IN AUSTRALIA 2003:
THE DVD REVOLUTION
EVEN IN A COUNTRY THAT TRADITIONALLY EMBRACES NEW TECHNOLOGIES, THE UPTAKE OF
DVDS HAS BEEN REMARKABLY FAST IN AUSTRALIA. THE FIRST DVD TITLE, EVITA, WAS ONLY
RELEASED IN THIS COUNTRY IN LATE 1997. YET BY 2003, 26 MILLION DIGITAL VERSATILE
DISCS WERE SELLING ANNUALLY. THE ARRIVAL OF CHEAPER DVD PLAYERS, SURROUND-SOUND
SYSTEMS AND a VIDUAL FLOOD OF NEW MOVIES AND SPECIAL FEATURES HAS UNDERPINNED
THE BOOM. GARRY MADDOX INVESTIGATES.
The DVD format has become a cultural phenomenon that has:
o quickly overtaken video as the dominant way of watching movies
at home;
o turned many movie viewers into "buyers" - effectively
collectors - rather than "renters", in a way that video never
did;
o prompted many Australians to install home cinemas, complete
with surround-sound systems and large screens, to take
advantage of the extra sound and picture quality of the
format;
o expanded into the impulse purchase and gift market alongside
books and CDs as prices have dropped;
o supplemented revenue for movie producers: it's now
acknowledged that around 50 per cent of the revenue that films
make comes from the DVD and remaining video market;
o revived many old movies for contemporary audiences;
o tapped DIFFERENT audiences through the release of multiple
versions of movies - from low-priced discs containing just the
movie to higher-priced ones carrying extra features;
o added a level of cinema appreciation and literacy for
audiences via director's commentaries, the addition of deleted
scenes, making-of documentaries and other special features.
As the price of players has tumbled - to less than $100 for cheaper models - the
format is now in an estimated 60 per cent of Australian homes when computers and
games consoles are included. ~hile this is still well below the percentage of
VCRs in homes, it expected to increase substantially as the price of DVD
recorders (as distinct from DVD players) falls.
DVDS DOMINATE HOME ENTERTAINMENT
The chief executive of the Australian Visual Software Distributors Association
(AVSDA), Simon Bush, says DVD became the dominant force in home entertainment in
2003. "That's been building for a number of years but 2003 really was the year
when the consumer bought into the DVD in a big way."
It was no surprise that Philips, the company that pioneered video recording in
the 1970s, announced in February 2004 that it would stop selling VCRs to focus
on DVD players. It became the first major home electronics manufacturer to
abandon the VCR in Australia.
Data from AVSDA shows that the number of DVDs dispatched by distributors to
retailers and rental stores jumped from 2.9 million in 2000 to 38.3 million in
2003, and DVD revenue from $69 million to almost $800 million.
Get the Picture - Video industry - Analysis 2003 Page 2 of 4
Over the same period, the number of VHS videos dispatched by distributors fell
from 14.5 million to 11.4 million, and VHS sales almost halved from $339 million
to $180 million.
Even distributors were surprised by the rapid growth in DVD sales in Australia
between 2000 and 2003, which outstripped most other territories. The tumbling
price of DVD players (down from $900 to $200-$400 and then below $100 for cheap
models) and the rapid availability of recently released movies were probably the
two key factors in the boom.
The managing director of Roadshow Home Entertainment, Chris Chard, says video
had been a relatively stable business in recent years - even declining in some
areas. While there was a sales market, most of the turnover was through rentals.
"It had certainly plateaued from a distribution point of view. DVD has really
taken the category to a whole new level. Revenue from wholesale never seemed to
get beyond $400 million ... And DVD, in a fairly short period of time, has taken
the figures to well north of double that" [$978.6 million in 2003; see Wholesale
sales: Revenue
THE "SELL-THROUGH" BOOM
For distributors, the big growth has been in sell-through. Financial pressures
in the music business meant that many CD retailers wanted to get into DVD sales
- - opening up the market As well as K-Mart, Target, Big Wand Myer, there was
suddenly a "retail base" that included HMV, JB Hi-Fi, Sanity and Harvey Norman
that helped the industry grow quickly.
The much-vaunted special features - including director's commentaries, deleted
scenes and trailers - appealed to the "early adopters" as they set up home
theatres with big screens and surround-sound systems. These features have
remained important to DVD collectors but less significant for the rest of the
market except in special cases like the extra effort put into the LORD OFTHE
RINGS trilogy for their DVD release.
Showing how the market has broadened, Roadshow says one-fifth of the LORD OF THE
RINGS DVDs sold have been for the extended versions. The rest have been the
standard cinema version.
Distributors acknowledge that consumers have responded to the format for various
reasons - the technical quality of the discs, their convenience, the special
features and the market change that saw movies available for sale much earlier
and much cheaper than they were on video. "Previously there was the rental
window and sometimes up to 12 months before a consumer could actually buy a new
copy of the video cassette," says Chard. "So the marketing impact of the
theatrical release was quite often watered down." Now it is typical for DVDs to
come on the market from three to six months after cinema release.
The time between cinema screening and DVD release will sometimes be even shorter
than three months. The third installment of the Lord of the Rings trilogy, THE
RETURN OF THE KING, was still playing in cinemas in late March yet was due for
DVD release in late May.
VHS VS DVD RELEASE
Distributors are expected to stop releasing certain films on VHS soon. Support
titles, including those that have not been released in cinemas, could bypass
video release as early as this year.
Films that "skew broad", appealing to both a young and older audience, are
holding up best on VHS. The young audience is watching on the VCRs that remain
in bedrooms and family rooms, while a higher proportion of the older audience
has not yet switched from VCRs to DVD players. a movie like MY BIG FAT GREEK
WEDDING was a
Get the Picture - Video industry - Analysis 2003 Page 3 of 4
strong video title; yet THE MATRIX RELOADED - appealing particularly to a young
16-40 demographic - was almost purely a DVD seller.
Roadshow's breakdown of revenue for the Lord of the Rings trilogy indicates the
importance of the DVD market compared to video for these phenomenally successful
films. The three films have earned more than $140 million in cinemas in this
country. On DVD and video, they are expected to take $110 million on initial
release, rising ultimately to possibly $140 million via an estimated 2 million
DVDs and 800,000 videos. Roadshow expects to sell about 400,000 boxed sets of
extended film versions on DVD and 50,000 on VHS.
While the big sales numbers come from new releases, the strength of the business
is "back catalogue". One industry estimate is that 60 to 70 per cent of the
movie business comes from back catalogue sales.
There has also been growth in special interest titles, including television
comedies, children's titles, documentaries and especially music titles.
CHEAPER PLAYERS DRIVING THE MARKET
Driving the DVD market is continued strong sales of players. There were just
45,000 DVD players sold in 1999 (average price $1005) for a total value of $45.1
million, according to GfK Marketing Services. 1.4 million were sold in 2003
(average price $223), for a total value of $312 million.
The general manager for corporate strategy and corporate marketing for Pioneer
Electronics, Darren Johannesen, expects sales to remain strong this year: "The
total market will not change an awful lot. But the percentage of products sold
that will be DVD recorders will increase." Johannesen says many DVD enthusiasts
have held off buying until recorders reach reasonable prices. With recorders now
selling for less than $700, it's likely that more households will be buying one
and pushing the existing DVD to another room.
Johannesen believes the improved picture quality has been less important to
buyers than better sound. "People were wowed by the picture quality. But in many
cases, they seemed to be completely sold by the audio quality." He estimates
there were 200,000 surround-sound systems sold last year, and expects digital
pay television to boost sales of plasma televisions and home theatre systems.
"People are interacting in a really deep way with home entertainment now," he
says. "People are cocooning, creating a castle at home."
VIDEO STORES, RENTAL AND RETAILING
The head of the Australian Video Retailers Association (AVRA), Ross Waldren,
says video stores have had to change their thinking and marketing as DVD has
taken hold.
"When VHS came out 20 years ago, I think everyone was excited about that format.
But [with the subsequent DVD] revolution, stores have had to lift their game -
their business plan - to suit." Waldren says the DVD-to-video ratio in stores
might be 80:20 in affluent capital city suburbs but isolated regional areas
remain relative strongholds for video. The ratio in Bourke or Broken Hill would
be closer to 60 videos to 40 DVDs.
The association holds that the competitiveness of the industry has forced down
profit margins but good returns are still achievable for smart operators.
Chains dominate the video store market - including Blockbuster, Video Ezy and
Civic- especially when franchise operations and buying groups are taken into
account. The retailers association believes there are around 2000 stores in the
country after industry rationalizations and that rental activity remains solid
despite the number of DVDs being sold.
Get the Pictllre - Video industry - Analysis 2003 Page 4 of 4
"We aren't seeing significant downturns in rental volumes," Waldren says, adding
that the availability of pirate discs, largely imported from Asia, and movie
channels on pay television have had only moderate impact on stores. He believes
more important drains on profitability are non-returns, late returns and damaged
stock, with up to 15 per cent of turnover lost this way.
While blockbuster titles such as THE MATRIX and GLADIATOR have long lives, the
typical cinema release continues to do most of its DVD rental business in the
first six months.
THE FUTURE
As video-on-demand via digital pay television and DVD postal services are
introduced, many in the industry believe the DVD market will continue to grow
for 18 months to two years before any plateauing
But with so many distributors (there are 40 listed in the industry magazine
SCREENPRINT), the top six or seven are dicing for market share, which has led to
DVD prices falling. Discounting of titles has increased sales - movies costing
$29.95 or 34.95 have been temporarily dropped to $24.95 or even $19.95 to drive
sales. Some major films have been selling even lower - $14.95 - without special
features. With DVDs available that cheaply and overnight rentals costing up to
$7.50 in Sydney, sales are likely to start cutting into the rental business.
Digital pay-per-view television is also likely to damage the rental market, even
though rental stores will continue getting new releases earlier in the
distribution chain.
On the technological front, there is industry talk about "denser" DVDs that can
contain more content and further improve sound quality and durability.
GARRY MADDOX IS THE FILM WRITER FOR THE SYDNEY MORNING HERALD