The next DTC: DVD explodes

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Ad agencies and media companies asking which marketing sector is going to see an explosion similar to that of the direct-to-consumer drug advertising a few years back now may have an answer: DVDs.

For the ad industry it seems there is no business like this particular show business. But just as in Hollywood, only a few can get on the A-list. For media agencies and media owners in the TV and magazine worlds, the explosive growth of DVDs has brought a significant chunk of change in a weak economy, but creative agencies and less visual media have largely been left out of this gravy train.

According to TNS Media Intelligence/CMR, studios spent $410 million advertising prerecorded video products during the first half of 2003, up 56% over the same period in 2002. That follows 59.9% growth for the category in 2002 compared to the previous year.

As U.S. households adopt the new technology at lightning speed, DVD sales have surpassed videotape sales, and studios are increasingly depending on DVD revenue.

The DVD player is the fastest-growing product in the consumer electronics industry, said Tom Edwards, senior industry analyst at NPD Group, a market information company. Currently, 54% of U.S. households have a DVD device, with 18% having two or more, said Mr. Edwards. By contrast, VCRs took 15 years to reach that level of penetration and TV took 25 years.

buyers vs. renters

On average, households bought three VHS titles in the year after buying a VCR, but DVD households buy on average 17 titles the year after they first buy a DVD player, according to NPD.

"People were taking video for granted. DVD came and was a tremendous boost for the industry," said Mr. Bersell.

"Look at the studios. They're making more money on video than at the box office," said Steve Fredericks, president-CEO of CMR. "That's directly tied to DVD sales."

The DVD has changed the studios' business model for the video segment, said observers. Rather than concentrate on selling tapes to rental outlets, they are now focused on selling DVDs directly to consumers.

For some media, the DVD boom has been a much-needed boon.

"A real bright spot," said Dave Morris, Publisher of Time Inc.'s Entertainment Weekly. Mr. Morris said home video-which includes DVDs-is now a "top five" category for his magazine, while five years ago it was merely in the top ten.

"It's a huge deal for us," said Paul Turcotte, Publisher of Hachette Filipacchi Media US' Premiere. The movie magazine repositioned itself earlier this year partly to cover-and win more ads related to-DVDs.

Mr. Turcotte forecast Premiere's DVD-related ad pages will rise around 7% for 2003, and if one exempts Paramount-which has a smaller release schedule than other studios-the category would be up 25%.

The majority of the DVD advertising, though, goes to TV "because they want to show you the movie," said Mr. Fredericks.

ad agencies left out

According to CMR, $277.5 million of the $410 million spent advertising prerecorded entertainment in the first half was spent on TV. By comparison, $111.7 million was spent in magazines, $7.5 million in radio, $6.6 million on the Internet, $3.1 million in newspapers and $1.4 million on outdoor.

Ad agencies have also been largely left out of the DVD food chain, since most DVD advertising is usually handled by the studios' marketing divisions.

"The creative almost looks like a theatrical trailer," said Laura Caraccioli-Davis, senior VP-director at Publicis Groupe's SMG Entertainment.

But some agencies have found ways to cash in on the DVD craze by forging tie-ins between other products and new DVD releases, said Ms. Caraccioli-Davis. She pointed to the recently announced tie-in between Miller Brewing Co. and the 25th anniversary DVD of Animal House. (AA, Aug. 18)

Agencies may also see an opening as the DVD market follows the textbook product cycle of maturing and slowing down.

Marketers, however, will have to change their pitch, said J. Walker Smith, president of market research firm Yankelovich Partners.

Marketers "haven't been showing people how to take advantage of the technology as a lifestyle event," he said. DVDs offer a way to open up the movie experience that was not possible with VHS, with alternate endings and other extras that lend themselves to group activity, said Mr. Smith.

"They need less of a product focus," said Mr. Smith. "This is not laundry detergent. Selling it as a product is not where it's at."

contributing: jon fine

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