Starting fresh
By Marcy Magiera -- Video Business, 1/5/2007
JAN. 5 | The Los Angeles Times started the New Year with a story in which its fine reporters and editors made predictions about what will happen in the media and entertainment industries this year. Among those predictions, under the heading “Hollywood crunch”: “As DVD sales decline for the first time ever, studios step up their crackdown on costs…”
As DVD sales decline for the first time ever? Just like it’s a foregone conclusion?
Unfortunately, that feels like a growing perception in the financial community, certainly in the consumer business press, and maybe even in some media companies themselves.
It’s definitely fueled by reports like the one Pali Capital Research’s Richard Greenfield and Mark Smaldon published as the curtain fell on 2006, predicting that 2007 will be the first year that consumer spending on DVD will decline in the U.S.
The analysts base their conclusion on some quarterly disc sales declines at Best Buy and Circuit City over the last year, and concern that studio moves into digital downloads and greater emphasis on the video-on-demand business could depress DVD sales.
Studio moves into digital downloads could well depress DVD sales, as could a greater emphasis on VOD, but it’s not likely to happen in 2007.
The analysts recommend that, in order to amply offset any lost DVD revenue, the studios sell digital downloads at full retail pricing or some premium tied to an appealing window.
The Pali group should rest easy in the knowledge that the studios want nothing more than to maintain DVD pricing for downloads. That’s why Disney’s the only studio so far offering its films through Apple’s iTunes.
DVD ended 2006 going very strong for an almost 10-year-old format. Sales of the shiny discs were up roughly 5%, and rental revenue jumped 10%, according to our partners at Rentrak Corp.
Although movie downloads and high-def disc sales were media darlings for much of the year, revenue from both represented less than 1% of 2006 DVD revenue.
Further, DVD’s increases were across the format, with studios reporting stronger new release sales than in 2005, while many also built their catalog businesses despite continued competitive pricing.
The rebound in new releases was due largely to the strength of theatrical blockbusters like Disney’s trifecta: Pirates of the Caribbean: Dead Man’s Chest, Cars and The Chronicles of Narnia: The Lion, the Witch and the Wardrobe.
The home entertainment market—particularly sell-through—is always dependent on the box-office success of its product, and from that standpoint, 2007 looks to be a banner year.
Pirates of the Caribbean: At Worlds End, Shrek the Third, Spider-Man 3, Harry Potter and the Order of the Phoenix, Transformers, Fantastic Four: The Rise of the Silver Surfer, The Bourne Ultimatum, Evan Almighty, Rush Hour 3, Live Free or Die Hard, Ocean’s Thirteen…
Enough said. Let’s get on with business.
