The death of video

The SMH has a story today about a video store that is selling 5000 VHS tapes for $2 a pop.

The statistics show why this is happening. In 2000, Australians spent $176m renting videos and $157m buying them. In 2006, we spent $0.5m renting videos and $3.6m buying them. The graph goes in the opposite direction for DVDs. In 2000 we spent $10.2 m renting DVDs and $59.5m buying them. In 2006 we spent $175m renting DVDs and $1,014m buying them.

Back when I worked in a video rental shop, we used to buy new release videos for $100. They went up to $110 or $120 just before I left. That was back when a new release rented for $5. We only used to buy about a dozen of each title - even if it was a blockbuster - because they were so damned expensive. With the tide of new releases coming out, each video did not have long to turn a profit.

Think about it - each video had to rent 20 times before it made a profit for the store. That's three weeks of being rented out every night.

Many vids were complete duds of course. We'd get 10 copies and few of them would ever leave the shelves. The store bought some absolute stinkers.

Where the store made all its money was from really old stuff. The boss would go to a store that was having a big sale of old stock and buy a boot load of videos. And I mean a boot load - he bought and bought and bought until the boot of his car was full.

Then he'd bring them to the shop and we'd have to clean them up, put them into the computer and find room on the shelves. They only rented for $1 a week, but given that he probably bought most of them for 50 cents, they turned a profit at the first renting.

The price of a new release also went to $6 just before I left due to the distribution companies ramping up the cost of new releases to $120. If you ask me, they were killing the golden goose.

The thing that I got out of this article is the amazing growth in DVD purchases. Look at the numbers - we are buying 7 times more DVD's per year than we ever bought videos. If you ask me, this is a big reason why sales of music CD's are declining. It's not on line piracy - it's the fact that people have a certain budget for buying entertainment. In the past, because of a lack of choice, most of it was devoted to buying CD's. When the option of buying movies came along, people simply shifted a proportion of that fixed budget from music to movies.

Let's say I budget $100 per year for entertainment. In 2000, I would have spent 100% of that on music, since I thought that buying videos was a crap way to spend my money.

In 2007, I might spend 60% of that $100 on movies and only 40% on music. The whole market has changed, and I don't think the record companies have a clue. They don't seem to get that people don't generally have a music budget, they have an entertainment budget. As more options come along for taking chunks out of that budget, spending on some items has to decline. The music industry seems to think that we have a music budget that is separate from all our other personal budgets (food, clothing, travel, rent etc) and is not impacted on by other close substitutes.

Now it could be argued that the $100 budget should be larger by the year 2007 due to growth in incomes and that sort of thing, but frankly, mine has shrunk quite considerably as I have gotten older. If I spent $1000 on music in 1995, I would be lucky to spend $50 in 2007.

And guess what? Most of my entertainment budget is now spent at places like the ABC Shop on Wiggles DVD's.