MINNEAPOLIS -- When movies shifted from videocassettes to DVD, retailers simply cleared the tapes off the shelves to make room for discs. That's not so easy now that movies appear poised to follow music onto the Internet.
The shift of music online has hurt stores such as
Music and DVDs are important to retailers because they've traditionally driven customers to stores. Each week's new releases give people a reason to come back. And for electronics retailers such as Best Buy Co. and
But the decline in the number of CDs sold has accelerated every year since 2003 and was 11.7 percent last year, according to NPD Group. The number of DVDs sold grew 5 percent last year, but that was down from a 9 percent increase during the previous year. Selling prices for both music and movies have declined. And NPD said DVD sales would have slid faster if not for the growth of TV programs offered on DVD.
"They're seeing fairly rapid declines in their CD business. That's likely to happen in their DVD business," said Andrew Hargreaves, who covers electronics retailers for Pacific Crest Securities.
"There's less and less foot traffic coming in for CDs, and that's certainly hurt their traffic and hurt the conversion rates to other products," said Stacey Widlitz, who covers electronics retailers at Pali Capital. "You can be sure that they're exploring what their next move is going to be in the business."
Even if movie and music downloads don't drive shoppers into stores, they at least keep retailers like Best Buy in the movie and music business.
Wal-Mart Stores Inc. is the farthest along after selling 3,000 movie downloads in its first month, February.
"We don't see digital downloading becoming a huge business in the next year or two, but our view is we need to be in the business, and we don't want to be at a competitive disadvantage," she said.
Online movies have a long way to go before they're as easy-to-use as downloadable music. Even compressed movie files can be a hundred times larger than an individual song, and Wal-Mart says a full-length movie may take as long as an hour and a half to download over a high-speed connection.