DVD Express preps for critical holiday sales rush

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Concerned about how ready your site is to meet holiday demand? Well, compared to DVD Express, you've got nothing to worry about.

Not only is the 2 1/2-year-old company at the center of the online shopping craze, it's also in a business--selling digital versatile disc (also known as digital video disc) movies--that's expected to explode this holiday season.

More than 2.3 million DVD players have been shipped to U.S. retailers from January through September of this year, more than twice the amount shipped in all of 1998, according to the Consumer Electronics Association. Some 55 million DVDs have been shipped to retailers so far this year, DVD Video Group reports.

Consumers are scooping them up; they bought 780,000 copies of "The Matrix" on DVD in the week following the flick's Sept. 21 release in the format, more than half the 1.5 million units shipped to retailers.

Studios that used to release movies first on videotape now release them in both formats simultaneously. Walt Disney Co.'s Buena Vista Home Entertainment will release "Tarzan" on DVD and VHS in February--the first time it will release an animated film in the two formats simultaneously.

But things aren't all roses and champagne at DVD Express.

COMPETITION EXPLODING

Though it was one of the first online retailers of DVDs (its site launched in April 1997, a month after the DVD format was introduced), it now competes with a slew of online players, ranging from movie site Reel.com to online retailing giant Amazon.com. Offline competition is heating up as well. Blockbuster in September said it plans to rent and sell DVDs in half its stores by yearend.

As in the VHS movie business, price-cutting is rampant.

Last month, DVD fans could score a copy of "The Blair Witch Project" at CheckOut.com, an entertainment retail site backed by Hollywood agent Michael Ovitz, for a promotional price of just $6.66--a fraction of the $30 list price. Last week CheckOut was charging $17.99 compared to $20.99, the price at DVD Express.

'LEVEL OF ABUSE IS HIGH ONLINE'

In the DVD retail business, record sales don't necessarily translate to record profits.

"Our mission is to stay the course, offer value-added promotions and price competitively," said Susan Daniher, DVD Express' VP-marketing. "We are very conservative with couponing . . . because the level of abuse is high online."

DVD Express' selling proposition is a broad selection and customer service. Its tagline is "High speed entertainment."

In other business environments, the combination of a new selling environment, soaring demand and intense price competition could be the prescription for disaster. But DVD Express is gunning on all fronts to make sure it thrives during the holiday season and beyond.

At press time, DVD Express was close to finalizing a merger with Maximum Holdings, a Los Angeles-based company that runs GameCave.com, an e-commerce site focusing on videogames; and GameFan magazine, a videogame magazine and network of Web sites. This will add a new dimension to the company's business, which is almost exclusively focused on retail.

The company canceled a planned initial public stock offering this summer, citing market conditions. It's expected to refile IPO documents in the first quarter, after the merger closes.

DVD Express expects to generate at least 25% of its 1999 revenue during November and December, Ms. Daniher said. Revenue is soaring--DVD Express had $11.2 million in sales in the first quarter ended March 31, compared with $16.9 million for all of 1998. (It hasn't released additional financials since its IPO filing in April.)

4,000 DVD TITLES

Ninety percent of revenue comes from sales of the 4,000 DVD titles it carries. Remaining revenue comes from newly added categories, including auctions, DVD games and consumer electronics.

Traffic to the site, is on a swift uptick, growing from 296,000 unique visitors in January to 401,000 in September, according to Media Metrix. (DVD Express says Media Metrix is underreporting its traffic because the service doesn't include traffic from its sister site dvd.com, which focuses on news about the DVD business.

The company says 1.15 million unique visitors went to dvdexpress.com and dvd.com in August, according to its internal Web log files.

NEW AD SLOTS

In early November DVD Express launched a site redesign, handled by i-Socket, Sausalito, Calif. Among the new features: more merchandising opportunities and new ad sponsorship slots.

"The challenge is highlighting all the products we have in our store," Ms. Daniher said. On the sponsorship front, DVD Express will market packages that start at $50,000, including ads on e-mail newsletters and site sponsorship. Rather than target studios, however, the sponsorships are aimed at companies in complementary product categories, such as home electronics.

"We have a very high concentration of early adopter, high disposable-income customers," Ms. Daniher said. "Our main strategy is to find [sponsors] with similar audiences" to DVD Express' audience. The company has tested a sponsorship with Replay TV, a company that makes digital TV recorders, and is working on renewing that contract.

On the marketing front, DVD Express is churning out promotions. Earlier this month, it launched a holiday shop, including a feature enabling consumers to shop by age, genre or interest; free gift bags; and an online gift registry.

This week the company plans to drop 2.1 million catalogs in newspaper ad inserts, part of a co-marketing deal with Hollywood studios. Each studio will get a page in the catalog to market a particular offer, such as Universal Studios Home Video, which plans to tout a free holiday compact disc with the purchase of three or more DVDs.

FREE TRIPS TO HAWAII

From Nov. 20 through yearend, DVD Express also will deliver a scratch-and-win card with each order, giving away free trips to Hawaii, DVD players and more. Simon Marketing, Los Angeles, handles.

Unlike most online retailers, DVD Express doesn't plan a big-budget holiday effort. It will spend just $2.5 million on radio, outdoor, print and online, handled in-house. The ad budget, split 60% offline and 40% online, includes co-marketing deals with America Online, Go Network and AltaVista.

"We're very targeted," Ms. Daniher said. "We're reaching a 3 million installed-player base right now. It's a lot to spend to [reach] that size audience."

Making sure those customers get what they want is a big part of DVD Express' plan. The company owns its own warehouse, enabling it to keep tabs on its in-stock merchandise. Where other Web DVD retailers have been plagued by shipping delays, DVD Express says it guarantees "when we say it's in stock, it's in stock," Ms. Daniher said.

Last year, when demand for "The Man in the Iron Mask" soared beyond expectations, DVD Express staffers fanned out all over the Los Angeles area, home of its corporate headquarters, buying some 500 copies of the movie from any store they could find it in. Luckily, DVD Express hasn't had to do that too often. Like every other online retailer, DVD Express is adding warehouse and customer service people for the holidays.

KEEP IT FROM CRASHING

All this preparation is designed to keep the site--and the business--from crashing. Last year, DVD Express began preparing for Christmas in August. This year, preparations began in June.

"We've been through a crash before and it is a nightmare to stare at a blank screen," Ms. Daniher said.

Pandesic, an e-business consultant, is watching memory and traffic levels and is prepared to scale the system to meet demand, she said.

What DVD Express has worked hardest at is tuning its front end, back end and marketing all to the same pitch.

Said Ms. Daniher: "Being an online site and having all of the data we have, all the way down to who buys what, where and when, gives me the utmost confidence that we are ready for the holidays."

Contributing Editor Debra Aho Williamson writes the monthly Inside the Web report. Send Internet case study ideas to debbie@milestone2.com or Editor Bradley Johnson at brad@adage.com.

Copyright November 1999, Crain Communications Inc.

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