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By Mike Snider, USA TODAY
LAS VEGAS — The love affair between consumers and DVD stayed strong in 2006 but not strong enough to prevent a second year of decline in overall home video spending as VHS withered.
DVD rentals rose strongly from 2005's $6.5 billion to $7.5 billion, while DVD sales inched up from $16.3 billion in 2005 to $16.6 billion last year, according to figures due today from the Digital Entertainment Group, an industry trade group.

Overall, $24.2 billion was spent on DVD and VHS, lower than in 2004 ($24.5 billion) and 2005 ($24.3 billion). VHS accounted for just $100 million in spending last year; as recently as 2004, VHS spending topped $3 billion.

The flattening of DVD sales and growth in disc rentals suggests "there is some limit to how many video programs consumers are willing to buy," says Tom Adams of Adams Media Research, a Carmel, Calif.-based research firm. "That limit went up dramatically over the past eight years from (what had been) about $6 billion in 1996 before DVD came along. There was huge growth in the amount people were willing to spend buying video content."

Since DVD arrived in 1997, more than 200 million players have been purchased in the USA, and about 88 million homes have at least one. Last year, consumers bought 33 million DVD players.

"With VHS all but diminished," says DEG executive director Amy Jo Smith, "DVD and high-definition packaged media will coexist with emerging forms of digital entertainment."

But Adams expects that with new formats not mass-market ready, home video spending will remain flat this year. "There's just too few homes with the ability to download movies or have a high-definition playback device," he says. "It's going to take a few years for millions of homes to get there."

Studios' hopes that movie lovers would embrace new super-sharp discs have been hampered by dueling formats. Sony and most studios support Blu-ray Disc; Universal is putting out its films only on the competing HD DVD format. Warner and Paramount release films on both.

This week at the Consumer Electronics Show, Warner plans to announce a Total HD disc that holds Blu-ray and HD DVD versions of movies on one disc and plays in either player. And LG Electronics will display a player that handles both formats.

If the electronics industry could resolve the format war, home video growth could spike again, Adams says. "That is the best shot studios have at reasonable growth rates going forward," he says. "Thirty million homes have (an HD TV) with not much to play on it."