The cover-mount DVD phenomenon

In recent years the phenomenon of cover-mounting – distributing a free gift with a newspaper or magazine – has expanded beyond the confines of the specialist press in the UK and has been adopted by national newspapers desperate to increase sales and thus advertising revenues. Screen Digest's RICHARD COOPER examines the impacts of the practice.

This seemingly harmless promotional activity has created a good deal of controversy in the video industry with the introduction in 2004 of DVD product into the cover-mount arena.

Although cover-mounted DVDs are found in other markets, the situation in the UK is unusual – if not unique – due to the sheer number of units involved, and the fact that they have no impact on the face value of the accompanying publication, making them effectively free to the consumer.

Screen Digest analysis indicates that at least 130m free DVDs were distributed by national newspapers in the UK in 2005 alone. By comparison 211m units were sold through mainstream retail channels in the UK last year. And the pace is accelerating.

In the first quarter of 2006, DVD volume sales through official channels actually declined slightly over the previous year, to 54m units – almost exactly the same number of discs as were given away by the papers! Research indicates that around 80 per cent of these DVDs are retained by recipients, the equivalent of more than five free DVDs per UK DVD household in 2005 alone. Meanwhile, Screen Digest figures indicate that the average British DVD household bought 11.4 DVDs that year, down from 12.5 in 2004.

Between 1 January and 31 December 2005, a total of 56 full-length films and 21 DVDs containing episodes of well-known TV programmes were issued as cover-mounts by British daily or Sunday newspapers. Although the vast majority of these titles were deep catalogue, Screen Digest analysis suggests that, had they been bought through mainstream retailers by consumers, they would have represented a potential £495m in retail sales.

It is, therefore, perhaps not surprising that DVD retailers in the UK have cited this issue as one of the principle factors, alongside piracy, for the slowdown in the DVD market in 2005. For the first time in DVD's nine-year history, consumer spending on DVD failed to grow in 2005, stabilising at £2.2bn. Some retailers have gone as far as refusing to stock titles used for cover-mount DVDs and, in some cases, de-listing the entirety of the appropriate distributor's catalogue.

Economics of a cover-mount

Our research indicates that the cost to a newspaper of issuing a free cover-mount DVD, including licensing costs, replication, promotional media spend and distribution, can be anywhere from £65,000 to £1.2m. The fact that cover-mount activity continues and has increased year on year shows that newspaper companies feel it is worthwhile. It has been reported that a successful cover-mount can drive an increase of up to 15 per cent in circulation on the day of issue.

Research commissioned from IPSOS by Warner Home Video and undertaken in February and March this year, suggests that as many as one in three newspaper buyers may select their paper on the strength of the cover-mount. It is less clear, however, how many of these additional sales are ever translated into increased long term circulation.

According to Screen Digest's research, the majority of titles used as cover-mounts can currently be purchased in the UK for an average of around £4 each. Screen Digest understands that in a few cases retail versions were on sale for less than the value of the newspaper cover price, which can be as much as £1.80 on a Sunday. Obviously, consumers were happy to pay for the novelty and convenience of buying from non conventional outlets.

What product is being cover-mounted?

Feature films dominated the titles used as cover-mounts in 2005, accounting for 63 per cent of the 77 titles distributed throughout the year. By far the next most significant category was TV product, which accounted for 21 per cent of cover-mounted DVDs. By comparison, TV DVDs accounted for just 13 per cent of DVD sales by volume in 2005, according to the BVA.

Film's 63 per cent share of cover-mounts was very close to its 67 per cent share of total market sales. It was smaller genres that were under-represented, with children's titles generating only eight per cent of cover-mounts, despite their 12 per cent share of volume sales.

The vast majority of cover-mount product had been available to UK consumers for some time and at a budget price. Screen Digest analysis of cover-mount titles in 2005 indicates that on average product had been available to purchase on DVD for three years prior to distribution as a cover-mount.

In recent years the speed at which DVD product has moved through its life-cycle, from new release to deep catalogue, has accelerated dramatically. At each stage price is used to re-promote titles, resulting in titles such as the Oscar-winning film Sideways being available for as little £3.49 in one major high street retailer at the time of writing, 13 months after release. It could be argued that the revenue potential of conventional product after three years is negligible, with only the smallest promotional price points open to it.

Impact of cover-mounts on total DVD spending

Few industry observers would dispute that the promotional activity surrounding a cover-mount can generate short-term sales gains for that title. The real issue, however, is whether receiving DVDs free causes consumers to reduce their DVD purchasing, thus depressing the overall market.

The clearest analysis of the impact of cover-mounts on total consumer spending on DVD in the UK comes from the TNS research. The data compares DVD spending between July 2004 and January 2005 with that in July 2005 and January 2006; this latter period was a time of particularly heavy cover-mount activity.

– Overall, spending on DVD by panel members who participated in the survey was down by 16 per cent between these two periods.

– Those receiving one or two cover-mounts spent significantly less on buying DVDs than any other group, and the actual amount, around £22.50 in six months, was virtually unchanged.

– Average spending on DVD by respondents receiving three to five DVDs fell by four per cent to £35.95. Taken into account the average price fall over this period, this actually represents a slight increase in the average number of units purchased.

– Respondents receiving six or more cover-mounted DVDs also spent the most on buying discs in H2 2004, averaging £55.22 each. This figure had fallen by 20 per cent by the second half of 2005, to £43.98. This decrease in spending outstripped the fall in average price and represents a genuine decline in spending equivalent to approximately one DVD every six months.

– Among respondents who bought weekend papers and received cover-mounts there was a clear correlation between the number of DVDs they received and a decline in DVD spending.

– But the 35 per cent of respondents who did not buy weekend papers also recorded a 22 per cent drop in DVD spending, from £37.74 to £29.44.

The fact that the two groups at either end of the spectrum showed such similar changes in spending, suggests that whilst receiving cover-mounts did affect spend it was clearly not the only factor in play.

The IPSOS study did not quantify the amount spent by consumers, but it did record their attitudes regarding the effect that DVD cover-mounts had on their spending. A quarter (26 per cent) of those who had received a cover-mount over the past three months claimed that they would otherwise have bought the official DVD of that title had they seen it at a 'reasonable price'.

Furthermore, a subsequent wave of research showed that almost one in 10 (9 per cent) said they had decided not to buy a DVD as a result of receiving a cover-mount, whilst a similar proportion (8 per cent) said they had opted not to rent a DVD for the same reason.

Separately, six per cent of respondents stated that they were buying fewer DVDs than before as a direct result of cover-mounts. In view of the importance of impulse purchasing to the DVD business, in particular in relation to catalogue and budget-priced product, these findings do seem to support the theory that consumers who receive cover-mounts in line with their own personal tastes may subsequently buy or rent fewer discs.

If 26 per cent of the DVD households that received a cover-mount last year had each bought one additional disc each quarter, Screen Digest calculates that as many as 12.7m additional units could have been sold last year. At £4 per unit (the average retail cost of the titles cover-mounted last year), this would have raised total UK consumer spending on DVD by over £50m, to £2,296m, an increase of 2.3 per cent on 2004.

None of the evidence to which Screen Digest has been given access offers conclusive proof that cover-mounts were the primary cause of the downturn in DVD spending in 2005. Neither, however, does it indicate that they were of any benefit to the mainstream business, beyond the immediate revenue gains for the rightsholders involved.

The fact that so many consumers consider their free DVDs to be worth retaining should in itself reassure the industry that the format still has a perceived value.

For further information, contact www.screendigest.com...

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