DVD's deep impact
By Marcy Magiera -- Video Business, 2/9/2007
FEB. 9 | The financial importance of DVD to Hollywood permeated the business news last week, playing a role in studio financial reports, personnel moves and new technology matters.
• Consider that no less than Peter Chernin, president and chief operating officer of News Corp., touted Fox’s position as category manager at Wal-Mart in discussing the media conglom’s quarterly performance with Wall Street analysts. “We were just named Vendor of the Year by Wal-Mart for the third year in a row, which is unprecedented,” crowed Chernin. “We expect to consistently outperform the market.”
Fox did have a quarter to crow about, with DVD standouts Ice Age: The Meltdown and X-Men: The Last Stand and pushing film unit operating income by 57% to $470 million, representing the division’s best marks ever for a second quarter. And the studio has got Borat and Night at the Museum in the pipeline for coming quarters.
• Shiny discs had the same effect at Disney, where DVD sales of Pirates of the Caribbean: Dead Man’s Chest and Cars helped the Mouse House double profits in its most recent quarter. Booming disc sales over the holiday season more than quadrupled operating income in the studio entertainment division, and disc sales of tween sensation High School Musical helped boost operating income 22% in the company’s cable networks division.
• MGM, in rebuilding mode, hired exec Jason Weiss to head a new division to produce 12 or more direct-to-DVD films per year. In this, the Lion follows numerous others, including Disney, Fox, Warner, Universal and Paramount, who see the potential in made-fors to extend franchises and keep video revenue flowing despite peaks and valleys in theatrical schedules.
• No development showed more clearly the importance of DVD to the studios’ financial health than those studios’ unanimous backing of Wal-Mart’s video download service, even though only two studios support Apple’s iTunes. True, Wal-Mart controls 40% market share in DVD sell-through, so the studios are likely to sign on to almost any project it proposes. But beyond that, Wal-Mart, according to studios, is paying the same wholesale price for downloads that it pays for DVDs. Apple, meanwhile, refuses to pay that way.
DVD is still the largest revenue stream to studios, and despite their efforts to develop new streams—and even more importantly, show Wall Street that development—they are not going to trade in DVD until they see a way to replace disc revenue and then some.
