Screen Digest and the video business

Background
Screen Digest has been covering the home video business, as part of the greater screen entertainment industry, since 1971 when the concept of affordable home video first emerged.
Over that time we have build up an extensive statistical database, and have become the pre-eminent source of information on the global industry.
Screen Digest has been working closely with the International Video Federation (IVF) since 1994 to improve the transparency and reliability of statistics in the IVF member countries.
We have built similarly strong relationships with video industry trade bodies in other key territories world-wide which do not fall under the IVF umbrella.
In September 2003 Screen Digest formalised a long-standing co-operation with California-based Adams Media Research (AMR). As a result, subscribers to Screen Digest Video Intelligence also have access to comprehensive data on the US video sector from the US's most respected industry analyst.
Data in Screen Digest's Video Intelligence service covers an estimated 99% of the world-wide video industry.

Where does the data come from?

Overview
Screen Digest data on any given video market is based on information gathered from a wide range of sources. These may include as appropriate or available:

• Local consumer electronics associations
• National and international hardware manufacturers
• Local video distributors' associations
• National, regional and international heads of US studios
• Key executives at local video distributors and licensees
• Retail tracking services
• Consumer market research studies
• Local video rentailers' associations
• Local video retailers and rentailers
• Local trade publications and websites

Whilst some of these sources take the form of publicly available documents, others have a limited circulation and some are confidential internal documents to which we have been given access. There are frequently as many sets of data or opinions as there are sources, and it is the job of the analysts to assess the reliability and validity of each piece of information and attempt to draw the most realistic picture of the current state of the market. As a result, it may often take several weeks or even a few months to finalise year-end numbers, although wherever possible reliable preliminary data is used to update forecasts in the interim. We maintain regular contact with the industry, actively seeking feedback on both the data we receive from local sources and our own forecasts. Where such feedback results in revision of current or forecast data, Video Intelligence subscribers are immediately notified of the reason for the changes and their affect on the data.

Hardware
We compile the underlying hardware data in Video Intelligence from all available industry sources. These may include manufacturers' shipments to trade, retail sales tracking data, consumer market research indicating average penetration levels, etc.
Our figures also take into account the proportion of sales which are replacements for existing machines and those which are believed to be duplicate sales (ie, going to a previously equipped household).
If no information exists to indicate replacement and/or duplicate equipment levels in a market this element is modeled on the basis of the situation in similar markets.
The DVD households figures published by Screen Digest are for TV households equipped with at least one stand alone DVD Video player or DVD recorder. Screen Digest DVD Video player/recorders numbers do not include households equipped with a DVD enabled games consoles or PC.
Data on DVD games consoles is extracted from Screen Digest's Games intelligence service and reflects only those games consoles which are fully equipped to play DVD Video discs.

Distributor level software
The exact methodology used to compile the data often varies not only from country to country, but even from year to year within each country.
In mature video markets (eg, most of Western Europe, Japan, Australia, Brazil) the distributors' association gathers regular data on its members' shipments of VHS cassettes and DVDs to the video industry - figures that form the core data from which we work.
Even at this level there is room for error; assuming that the data submitted by each company is 100 per cent accurate, the data supplied by association members must be grossed up to give a total market figure. As a result, Screen Digest's distributor level statistics will usually be higher than the 'official' numbers released by the associations themselves.
As far as we have been able to ascertain, all shipment data in the Video Intelligence services is net of returns.

Consumer level software: retail
In the UK the retail sector is regularly monitored through a long-established and extensive electronic point-of-sales system which provide a reliable independent source of consumer sales. A similar situation exists in the US, although the size of the market means there is significant debate over what proportion of the total business it covers.
Several other countries also benefit from commercial retail sales tracking services. Although there is often debate as to what proportion of the total market such services cover, top line data from such a source can provide a useful guideline to market trends. Screen Digest welcomes the recent move from such bodies towards increased levels of cooperation with local industry asssociations which is helping increase the availability of realistic consumer level information.
Regular consumer market research can also provide an indication of consumers' purchasing habits, although research based on customer recall is notoriously unreliable.
However, in many countries is no way of tracking what happens to videos once they arrive in-store. In such cases, Screen Digest's retail consumer spending figures are modeled on the basis of average dealer mark ups.
In most cases retail sales figures should reflect shipment figures (since the latter are net of returns). Where there is a discrepancy this reflects either additional stock being acquired to fill new shelf space or surplus stock being sold off as shelf space is reduced.

Consumer level software: rental
In the UK the rental sector is regularly monitored through a long-established and extensive electronic point-of-sales system which provides a reliable independent source of consumer level data. A similar situation exists in the US, although the size of the market means their coverage is less extensive. No other markets boast similar independent systems large enough to provide reliable rental data.
Regular consumer market research can also provide an indication of consumers' rental habits, although research based on customer recall is notoriously unreliable.
However, in many countries is no way of tracking what happens to videos once they arrive in-store. In such cases, Screen Digest estimates the average number of rentals per unit shipped and/or the proportion of annual rental store turnover spent on the acquisition of new stock on the basis of industry feedback.
Our analysis also takes account of different business models, such as revenue-sharing systems of rental stock management. Such systems give dealers access to more units at a lower average cost in exchange for splitting the subsequent rental takings with distributors, which can dramatically inflate shipments from one year to the next.
As far as we have been able to ascertain, all distributor revenues and consumer spending figures in this service reflect the final situation, i.e. after any shared revenue payments have been made.
Another new rental model to have emerged in recent years is the subscription rental business, whereby consumers pay a monthly fee rather than a per transaction (à la carte) fee. In most countries such systems are restricted to online (rental-by-post) services, although in the US market some store-based rentailers also offer subscription services.
Where the data is available, Screen Digest has analysed the proportion of the DVD rental business generated by such subscription-based services. This data is based on detailed analysis of information obtained through interviews with local rentailers and other industry sources.Where no specific data is available on a given market, the data is modelled on the basis of our knowledge of the situation in similar territories.
When the market for DVD rental was first emerging a number of territories made no clear-cut distinction (in either price or packaging) between a rental DVD and a retail one, making it difficult to know how many units were even made available for rental, let alone how many times each was subsequently rented.
Whilst most distributors in Europe now charge a premium price for rental DVDs ensuring that shipments to the rental sector are easier to monitor, in many of the less developed Asian markets there is still no separate price for rental units. This reflects the fact that high levels of piracy and the widespread availability of cheap counterfeit product have made it impossible for distributors to impose premium prices for rental products. Instead all units are distributed at a flat rate price and then either sold or rented at the discretion of the retailer.
If there is no means of measuring the actual sales or rentals at consumer level, it becomes impossible to even estimate what proportion of shipments is used for rental and how often each unit rents. This is particularly true for VCDs and DVDs. In such cases we treat the market as a purely retail business, assuming that all units shipped are sold through to consumers.

Forecasting methodology

Overview
Screen Digest creates forecasts on a country-by-country basis using a customised forecasting model specially adapted to take into consideration competing markets and other external factors.
The results generated are subject to detailed examination by Screen Digest's experienced analysts to ensure that they make sense in relation to accepted industry parameters.
One aspect of this check is to analyse the tie ratios (number of units sold or rented per equipped household) generated by the forecasts to ensure that they correlate to behaviour patterns seen historically in the country in question and/or in similar territories.
Finally our forecasts are subject to a process of consultation with key players in the industry. This essential step helps ensure that we have not overlooked any recent trends or developments which may affect business potential in a given market. We welcome feedback from Video Intelligence subscribers and other industry sources at any time and are always happy to review forecasts in the light of new information.
Where such feedback results in revision of current or forecast data, Video Intelligence subscribers are immediately notified of the reason for the changes and their affect on the data.

Hardware
Hardware penetration is forecast on a country-by-country basis through a modified S-curve model based on regression analysis of detailed historic hardware figures.
The model also accounts for sales going into replacement hardware and multi-equipped households although at this stage these are not broken out in detail.

Software
Volume sales are forecast on a country-by-country basis through a computer model. This incorporates dynamic elasticity rates reflecting macro economic factors, impact of hardware penetration, software pricing and competing media.
The model also takes into consideration the impact of early, mid and late adopters to the acceleration of volume sales.
Software prices are forecast on the basis of general economic trends in each territory, historic pricing trends and industry feedback on the likely evolution of VHS and DVD pricing.
Pricing forecasts are calculated in local currencies except where devaluation or currency changes (eg, adoption of the Euro in Euro zone countries) mean historic comparisons are no longer valid. In such cases they are calculated in Euros (for European territories) or US dollars using current exchange rates.

General

Piracy methodology
The piracy data published by Screen Digest is provided by the Motion Picture Association (MPA).

Screen Digest does not forecast piracy rates and we take pains to ensure that our historic and market data reflects the legitimate business only.

The piracy data available to subscribers through Screen Digest's Video Intelligence service was updated in 2006 based on revised methodology from the MPA. Historically the MPA has released annual estimates of relative levels of piracy between territories. Although these represented the most consistent data source of information on piracy available, they were based on estimates from local sources rather than a consistent mathematical methodology and thus reflected relative levels of piracy (both between countries and year-on-year) rather than any absolute measure.

In order to address this issue, in 2005 the MPA commissioned a study from LEK Consulting which was conducted over a period of 18 months. It consisted of a detailed survey of 20,600 movie consumers in 22 countries using focus groups and telephone, internet and personal interviews. The study focused on movie watchers and omitted those who had dropped out of the market for movies. Data collated from the 22 directly-research countries was subsequently extrapolated to cover 42 additional countries using a regression model developed by LEK in conjunction with UCLA and based on country-specific characteristics to complete the worldwide piracy picture.

Thanks to an agreement between the MPA and Screen Digest, subscribers to Video Intelligence now have access to the following data on piracy, based on the revised methodology:

Country-by-country piracy rates for both physical and digital piracy.
Potential losses to MPA member companies (ie, the US majors) in dollar revenues from physical and digital piracy.
Potential losses to the wider audio-visual industry (ie, total potential value lost to piracy).
For the purposes of this research, digital piracy is defined as obtaining movies either by downloading them from the Internet without paying or by acquiring copies of illegally downloaded movies from friends or family. Estimates of potential losses to piracy in dollars are based on the number of legitimate movies (ie, movie tickets and legitimate DVDs) that consumers would have purchased if pirated versions were not available.

Since the new methodology is much more robust than the previously published estimates, the two sets of data are not comparable. At the request of the MPA, we have therefore removed the historic data sets from Video Intelligence. It is the MPA's intention to update this new research on a regular basis, and to share the results of such updates with Screen Digest for inclusion in this service.

For more information on the MPA and the LEK study please see: www.mpaa.org

Glossary of terms

Video Intelligence definitions

Video
the term 'video' is used generically to describe the whole sector. Where a specific format (VHS, VCD or DVD) is referred to this is clearly indicated.

VCR households
homes equipped with at least one VCR

VCD households
homes equipped with at least one standalone TV-based Video CD player

DVD Video player households
homes equipped with at least one standalone TV-based DVD Video player

DVD recorder households
homes equipped with at least one standalone TV-based DVD Video recorder

DVD player/recorder households
homes equipped with a DVD Video player and/or a DVD Video recorder

DVD games console households
homes equipped with at least one games console capable of playing DVD Video discs

Retail video
the business of selling video cassettes and/or discs to consumers (sometimes known as 'sell-through').

Video rental
the business of offering video cassettes and/or discs discs to consumers for rental.

VHS software
pre-recorded VHS cassettes made available to consumers for either rental or purchase.

VCD software
pre-recorded VCD discs made available to consumers for either rental or purchase.

DVD software
pre-recorded DVD discs made available to consumers for either rental or purchase.