The collapse of bricks and mortar stores

With the failure of several major European bricks and mortar video retailers in the first month of 2013, the future of physical video in Western Europe appears bleaker than ever. However, TANIA LOEFFLER, Research Analyst with IHS Screen Digest, cautions against reaching hasty conclusions.

First Virgin Megastores in France declared insolvency, as fellow French retailer FNAC said it will be selling off its eight stores in Italy. HMV, the UK's largest video specialist retailer, fell into administration, followed by Blockbuster UK a few days later.

A common thread in press coverage regarding the closing of retail outlets specialising in physical video is that 'no one buys physical video any more.' It is no secret that, yes, the number of transactions for physical disc purchases is in decline across Western Europe. However, the scenario which is presented over and over again is far too simplistic to explain the decline in physical retail transactions or the difficulties facing physical video retailers.

So, what is driving declines for DVD and Blu-ray purchases? Is it because everything transitioning to digital? Yes and no. While there is no doubt that there is some cannibalism of physical purchase by digital consumption, the trade is by no means one-for-one. To date, very few digital or online movie services have made the purchase movies and TV content into enough of a compelling consumer proposition to drive the kind of consumption that will account for losses on the physical side. Indeed, when consumers make the digital switch, they are more likely to turn the digital rental not retail.

Data suggest that consumers moving to the digital space, are choosing not to consume content on a transactional basis at all, but in a subscription environment, such a Netflix or Lovefilm. The same dynamic can be said to exist for the increasing number of people making good use of the PVR included with their TV set-top box. Why spend money on the DVD box set of your favourite television programme when you can just record and store it on your PVR from the TV subscription you already pay for anyway?

The transition from physical to digital is not necessarily a straight line, with digital still lacking often the ease, quality and selection of premium content still offered by DVDs and Blu-ray Discs. But why then is the physical purchase market struggling to generate the levels of consumer spending it once did?

Key to the decline of physical retail is the commoditisation of DVD and Blu-ray discs. The result is shrinking shelf space and promotional dollars dedicated to physical video from the retailers which carry it as part of their product mix. The competition on price has been the result of grocery chains using DVDs and Blu-ray Discs as footfall generators, offering new release titles at loss leading prices.

By marketing and treating physical video as a product category equal to that of a loaf of bread, much of its intangible value is stripped away. This has also forced specialists like HMV and Virgin to continuously lower their prices in order to compete. Unlike a grocery chain, HMV does not have the luxury of spreading its margins around hundreds of other product categories.

Even if all bricks-and mortar specialist selling physical discs closed, consumers would still have the option of purchasing DVDs and Blu-ray Discs from online retailers such as Amazon. A consistent one-third of physical video purchases are already made online. Online lacks much of the promotional power of a bricks-and-mortar presence. With each closure of an outlet that either specialised in physical media closing, or another type of outlet ceasing to sell it (or reduce shelf-space or promotion), consumers lose both awareness and opportunities to purchase - driving further declines in transactions.

There is no doubt that some consumers are moving away from purchasing movies on physical discs. However, the message that 'no-one buys DVDs any more' is largely untrue; it is one that should be challenged, lest it become a self-fulfilling prophecy.

Contact: www.screendigest.com...

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