The video industry in Australia

Analysis by Sandy George

Video sales is a booming business in Australia. In 2007, members of the Australian Visual Software Distributors Association (AVSDA) earnt $1,136 million in revenue from 82.2 million copies of videos sold to retail outlets and a further $211.4 million from approximately 13.2 million units supplied to rental outlets.

According to sales figures from major retailers supplied by GfK Retail and Technology Australia, the value of retail video titles in 2007 was estimated at $1,231.3 million, compared to $1,047.1 million the previous year and just $150.7 million ten years earlier.

During that decade, we’ve seen a fundamental change in the mindset of many video consumers: after years of renting, they have become buyers. In 1998, wholesale sales to rental outlets made up 21 per cent of unit sales; in 2007, it was less than 15 per cent.

We have also witnessed the spectacular rise of the DVD format. Introduced to Australia in the late 1990s, by 2001 DVDs were earning more per year for distributors than the VHS format they have now almost entirely replaced.

Why DVD is a booming business?

There may be several factors behind these shifts.

Across the country, households are putting audiovisual entertainment centre stage in their homes with the installation of so-called home cinema systems. Screen Digest reported that in 2007 Australia ranked fourth internationally in terms of DVD player/recorder penetration and seventh in terms of spending on video. A report by the Australian Communications and Media Authority found that, in 2007, 97 per cent of Australian households with children had at least one DVD player (the average was 1.7 players) and that children spent an average of 24 minutes a day watching videos, up 71.4 per cent on 1995. According to GfK Retail and Technology Australia, more than two million DVD players have been sold in each of the past five years, and every year they become cheaper.

DVDs themselves have also fallen in price: there has been a steady decrease in the average wholesale price per retail unit, from $22.18 in 2001 to $13.76 in 2007, and this is reflected in lower prices for customers.

Historically, there was a lengthy gap between the screening of titles in cinemas, their release on video for rental and then their release on video for purchase; however, this window is now closing. According to analysis of GfK Retail and Technology Australia data by the Faculty of Economics and Business at the University of Sydney, the gap between theatrical and video release in Australia has reduced from an average of 26 to 19 weeks per title from 2004 to 2007 – a contraction of 27 per cent in just four years.

Unlike VHS, DVDs now commonly include ‘bonus features’ such as director’s commentary, deleted scenes, alternate endings, behind-the-scenes documentaries and interviews. They are marketed as gift items and may be packaged as compilations, boxed sets and collector’s editions. The 15th anniversary DVD edition of the film Dirty Dancing, for example, was such a success that it was included in the top five retail titles of 2006.

With DVDs being positioned as a retail item, rather than just a rental one, distributors have been able to feed them through many more outlets, including supermarkets, petrol stations and newsagents, increasing their accessibility. DVD has added a new dimension to shops that predominantly sell music.

While chains such as Civic, Video Ezy and Blockbuster still dominate the rental store market, there are a growing number of Australians renting DVDs through online services, which mail DVDs to paying subscribers who place orders through their websites. One such company, Quickflix, says it has posted out three million DVDs from its library of 30,000 titles since opening for business in 2003, and now generates monthly revenues in excess of $500,000.

DVD vending machines are another innovation in the rental market. This automated technology provides customers with 24-hour access yet charges cheaper rates than stores due to lower overheads.

What are Australians watching?

Generally, the same titles that are the most popular in cinemas, namely blockbusters from the US studios, are the most popular on DVD. Seven of the top 10 rental titles in 2007, in terms of both the number of wholesale units shipped by distributors and the number of units sold, were also the most popular films that year in cinemas. Franchise films such as Harry Potter and the Order of the Phoenix, Shrek the Third and Pirates of the Caribbean: At World’s End were among these titles, as well as one-offs such as Night at the Museum and the Australian-made Happy Feet.

From 2000 to 2007, sales of movies as a proportion of total DVD sales, have dropped from 90.8 per cent to 56.2 per cent.

Television series have become a popular staple, rising from just 2.1 per cent of total sales in 2000 to 27.7 per cent in 2007. For the first time ever, a television series, namely the homegrown Summer Heights High, was included in the top 10 hits of 2007. Music, sport, documentary and children’s titles have all increased their share in the past eight years.

A much bigger range of product is available on DVD than there ever was on VHS, giving people of all ages and interests more chance of finding titles that appeal to them. Overall, according to Trade Service of Australia VideoSource data, the number of new releases on video was 5,419 in 2007 compared to 4,131 in 2000, having peaked at 6,758 in 2004.

Revenues up on Australian content

The number of video releases of films, television programs and other content produced within Australia make up only a small proportion of the total. That said, Australia’s 3.3 per cent share in 2006, the latest available figure, was the first time annual local content had exceeded three per cent.

To find out what Australian titles earnt in 2007, the Australian Film Commission analysed data from GfK Retail and Technology Australia on the top 1,000 titles overall by value of retail sales (the 1,000 titles represented three per cent of titles but 51 per cent of total sales revenue).

According to these calculations, 8.5 per cent of the revenue from these top 1,000 titles came from Australian productions, equating to $52 million, up from $40.3 million in 2006. The biggest contributors were Happy Feet, Summer Heights High and Kenny.

These three titles, plus Kath & Kim: Series 3 and McLeod’s Daughters: Season 2, recorded the highest cumulative sales in the three years to 2007. Adult television drama earnt $18.5 million, more than any other genre. The increasing attention given to Australian television series can be seen as a microcosm of what is happening across the whole sector.

The third most popular feature was The Castle (1997), which has been in the top three every year since it was first released on DVD in 2004, illustrating the long life some programs can have on video and the extent to which the video market can provide ongoing revenue streams.

Australian productions hold great appeal in the children’s market, making up nine of the top ten retail DVD titles in 2007, with eight of those featuring perennial favourites The Wiggles.

The market has opened up to many distributors

The Australian home entertainment divisions of the US studios – Warner Bros, Paramount, Sony, Fox, Universal and Disney/Buena Vista International – are among the highest earning video distributors by virtue of the popularity of US blockbusters in the marketplace. Prominent Australian theatrical distributor Roadshow is also a major player in video. Together, these companies accounted for more than three-quarters of the Australian retail video sales in 2007, according to GfK Retail and Technology Australia data. Other significant Australian companies include Magna Pacific, Madman Entertainment and Shock.

Consumer interest in a range of content has opened up the market to many other players including music specialists such as SBME and EMI Indent.

What could burst the DVD bubble?

Piracy continues to have an impact on home entertainment revenues although the efforts of the Australian Federation Against Copyright Theft is creating growing community awareness of the problem. According to LEK Consulting, piracy cost the Australian film industry (excluding TV) over $230 million in 2005, with 47 million pirated DVDs in circulation in Australia compared to 52 million legitimate DVDs sold in that same year. In 2007, state and federal police conducted 85 raids, seizing 585,000 pirated DVDs and 459 DVD burners said to be capable of producing over 11 million DVDs per year. Internet piracy is also a problem, and one which is harder to police.

Developments in new technologies will always have a bearing on how audiences engage with content. Just as the battle for videocassette supremacy was played out in the 1970s with VHS eventually defeating Betamax, and DVD challenged and quickly took over from VHS as the format of choice around the turn of the century, so the high-definition optical discs Blu-ray and HD DVD have more recently locked horns. In early 2008 two death blows were delivered: the US studio Warner Bros announced it favoured Blu-ray and manufacturer Toshiba said it would cancel production of HD-DVD, effectively ending the battle. However, new formats currently make up less than 1 per cent of the video market in Australia and DVDs, for now, remain pre-eminent.

In the future, it could be that the television becomes a key device for accessing the Internet in homes – or that the computer screen becomes even more television like. Under this scenario, providing access speed, security and payment issues can be resolved, making content available through legal downloads may turn out to be the most popular way to get it to consumers.