DVD, CD retailers still see a 'shiny disc world'

Confab speakers optimistic despite falling sales

Home entertainment retailers on Wednesday concluded a two-day pep rally staged to buck up sector spirits amid the challenging economic times.

But in a sign of the times, participants in the Future of Packaged Media confab first had to reassure attendees there will be a future for bricks-and-mortar retailing.

"I just don't see a time in the foreseeable future when we don't have people shopping in a physical store," said Jim Donio, president of National Association of Recording Merchandisers.

Still, there was the pesky reality of the recession to acknowledge. Things are so bad in home entertainment retailing, the Entertainment Merchants Assn. -- a co-sponsor of this Universal City confab -- canceled this year's edition of their long-running and much larger Home Media Expo in Las Vegas.

NPD Group analyst Russ Crupnick, who addressed on the first day, said format burnout and the recession have combined to drive down DVD over the past several months, while compact disc sales are more slugglish than ever. An NPD survey of music-buying habits found 37% of respondents were buying fewer CDs because they were "spending less on entertainment" -- the chief stated reason for reduced buying.

"We've done these studies since 2001, and this is the first time I've seen people say the economy is the reason they are buying fewer CDs," Crupnick said in an interview.

Yet the analyst maintains a glass-half-full reading of the marketplace.

"Three times as many people are buying CDs as are buying digital downloads," he said. "Even today, it's still much more a shiny disc world than an iTunes world."

Keynoted John Marmaduke, CEO of the Texas-based retailer Hastings Entertainment, on Wednesday detailed his 152-store chain's evolution over the 33 years he's headed operations. Music has shriveled in importance while DVD and book sales surged, and video games represent an important and growing revenue stream, he said.

"In 1976, music was 75% of our business," Marmaduke said. "Today, it's 15%."

Hastings, which supplements sales of new merchandise with used inventory in all categories, only operates in small to midsize markets. Marmaduke doesn't plan on changing that anytime soon.

"Big cities have been so over-retailed," he said. "The U.S. is going through a restructuring as much as a recession. We think there is another three or four years of rationalizing before everything shakes out in some of those bigger markets."

Meantime, even among retailers dealing primarily in DVDs -- the source of so much hand-wringing among industry analysts charting the format's projected revenue declines -- there are success stories. Kiosk retailing forms a particularly hot segment of DVD sales and rentals.

"We're opening a new one every 80 minutes -- 24 hours a day, seven days a week," Redbox COO Mitch Lowe said.