U.S. DVD unit sales dropped in '07

Sue Zeidler

LOS ANGELES (Reuters) - U.S. DVD unit sales fell 4.5 percent in 2007, marking the first big year-over-year decline for the category since the disc format debuted in 1997, according to preliminary estimates released on Thursday.

After essentially flat trends for 2005 and 2006, sales of films and TV shows on DVDs fell from 1.144 billion units in 2006, to 1.092 billion units in 2007, said Tom Adams, president of Adams Media Research, a California-based entertainment data firm. The figures include next-generation DVD sales.

Unit sales in 2005 were down 0.3 percent from 2004, and inched up 0.2 percent in 2006 from 2005, Adams said.

According to Adams Media tallies, consumer spending on DVDs fell 4.8 percent to $15.7 billion in 2007 from $16.5 billion in 2006.

Adams noted that while unit sales were flat in 2005, spending also declined that year by about 1.5 percent.

Major studios had hoped for substantial sales gains in the fourth quarter of 2007 with the release of such hits as "Fantastic Four," "Ratatouille," and "Transformers."

But Adams said fourth quarter DVD sales essentially matched the fourth quarter of 2006.

"The main culprit has been the decaying sales of new releases," Adams said. "The average performance on new releases per box office dollar has been declining since 2003. And this year, sales of TV shows on DVD fell for the first time ever. Catalog sales also declined," he said.

Catalog sales are the sales of films that have been out on the market previously.

The DVD format was launched in 1997, when sales totaled about $6.2 billion.

The industry registered double digit sales growth each year for much of this decade, until sales hit about $16.6 billion in 2004.

Adams believes a combination of factors have contributed to the slowdown, including the fact that most households have slowed building their DVD collections after extremely aggressive pricing on catalog products drove huge gains over the past few years.

Adams believes the industry will likely suffer continued slowness in 2008 and 2009 as a format war for next-generation DVDs plays out and before next-generation DVD players become widespread. The industry will be back on a healthy growth track in 2010, as high-definition DVDs take off, according to Adams.

"High-definition is the ray of hope for the industry," he said.

(Reporting by Sue Zeidler, with additional reporting by Nicole Maestri in New York; editing by Carol Bishopric)