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HD DVD will Provide the Home Video Upside

While the U.S. home video business is in an apparent decline, Kagan Research sees high definition (HD) DVDs halting the downturn and helping achieve modest growth to reach a peak expected in 2012.

A new Kagan study forecasts that U.S. consumer spending for home video software in the important sell-through category will rise from nearly $17 billion this year to nearly $28 billion by 2012. Those figures exclude the declining video rental category.

The estimate represents good news for the total U.S. home video software business that contracted 1 percent in 2005, and looks to continue its slide, but by less than 1 percent in 2006 and again 2007 (for both sell-through and rental categories combined for DVDs and VHS tapes). Kagan forecasts total U.S. home video software revenue will again rise from 2008-2012.

Thus, U.S. home video software will eke out a low single digit compound annual growth rate (CAGR) in the next decade through 2015. But in 2013-2015, video-on-demand will cut into home video rental revenue, which is expected to slide from the 2012 peak.

"While high-definition DVD will lift the video market back up, it's in for a couple of rocky years," says Kagan Research analyst Wade Holden. "We are projecting overall video retail revenue to decline through 2007 as VHS revenues plummet to near insignificant levels and the growth rates on standard definition DVD revenue continue to drop."

The new impetus in 2008 is hi-def DVD -- now the object of a format war between Sony-backed Blu-Ray and Toshiba-pushed HD DVD. Hardware for the two incompatible formats was introduced this year, creating consumer uncertainty. Eventually, either one format will prevail or dual format players will be offered, clearing the way for a hi-def boom, notes Holden.

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