Panel: DVD business flat to down this year, depending on high-def momentum
By Susanne Ault -- Video Business, 6/19/2007
JUNE 19 | LOS ANGELES—The DVD business is down so far this year, but evolving high-definition formats will keep the industry from falling into the doldrums permanently, according to studio and analyst participants at the Home Entertainment Summit: DVD and Beyond here this week.
During a panel discussion of home entertainment division presidents, panelists said that at best, the 2007 year will wind up flat from last year. With DVD hardware penetration at more than 80% in the U.S., the disc gold rush days are long past.
Warner Home Video president Ron Sanders and Buena Vista Worldwide Home Entertainment president Bob Chapek estimated business could very well be off a couple of percentage points, even though both expect a fourth-quarter surge with such summer juggernauts as Pirates of the Caribbean: At World’s End hitting DVD.
Year-to-date, worldwide consumer spending on DVD purchases represents $10.4 billion, which is down 2.6% from the same period in 2006, according to research presented by the Digital Entertainment Group. Within that performance, new releases slipped 5.4%, and catalog jumped 3.2%.
In the U.S., consumer spending on DVD purchases fell by 5.2% to $5 billion, DEG reported. New releases are down 8.5%, and catalog is flat. Some of this DVD slump can be blamed on theatrical content, as box office value of new releases to date is trailing 8.1% from last year.
“[The year could end] up flat, or slightly up, depending on the degree to which high-def takes off,” noted Kelly Avery, president of worldwide home entertainment at Paramount Pictures. “Box office for the summer is up 5% [compared to 2006], making it bigger than the last two summers.”
Studios and analysts are bullish about their futures. But they realize they have to be patient as consumers catch on to HD DVD and Blu-ray.
“It’s in the very, very early days of our forecasts, but we believe that high-definition discs will help return consumer video spending to growth,” said Helen Davis Jayalath, senior analyst video at Screen Digest, during a session.
Dual-format publishing
Despite Blockbuster’s recent move to focus on Blu-ray, Screen Digest believes it behooves companies to make the most of high-definition by dual-format publishing and/or manufacturing.
By 2010, there will be 45 million high-def game console units sold in U.S., Europe and Japan. This is much more tilted toward Blu-ray PlayStation 3 than Xbox 360 HD DVD drives. Worldwide, there will be more than 30 million Blu-ray and HD DVD stand-alone set-top boxes sold, heavily weighted toward the relatively cheaper HD DVD.
“Studios will feel they can’t afford to ignore the other constituency, and manufacturers will become agnostic” said Jayalath. “[Although BD will capture a larger install base,] PS3 users will buy far fewer discs than those buying set-top boxes. If you are a gamer, you have substantially less time to watch movies.”
Blu-ray discs are expected to outsell HD DVD discs by a 1.7-to-1 ratio by 2010, according to Screen Digest.
High-def adoption slower than DVD
Consumer acceptance of HD DVD and Blu-ray will be more gradual than the transition from VHS to DVD in the late ’90s, said Jayalath, but it will nevertheless prove vital to studios, boosting worldwide studio revenues 4% to $45 million between 2005 and 2010.
By 2010, home entertainment consumer spending will total nearly $35 billion, spanning the U.S., Europe and Japan, representing 4% annual growth from 2007. That includes roughly $10 million spent on high-def discs. Another research firm Understanding and Solutions believes that for the U.S. alone, consumer spending will total about $25 billion by 2011, and encompass about $10 million high-def.
“The adoption of these formats will follow a similar curve to that of DVD but with constraints to that of HDTV households,” said Jayalath.
The 30 million stand-alone high-def disc players expected in homes by 2010 will cover 16% of all HDTV households but only 10% of all TV households.
Understanding and Solutions director Jim Bottoms said that competitive electronics chains will use price drops to spur high-def TV purchasing for some time. By the end of 2008, more than half of all U.S. homes will be high-def-ready.
Also, high-def TVs should make traditional DVD players obsolete for some people, insists Bottoms, because “there [are] limitations of standard-definition content, and it becomes apparent at the large screen size. Quality issues come to the fore that much more.”
Year-to-date, there are now 300,000 HD DVD-equipped homes in the U.S., split evenly between stand-alones and Xbox 360 drives, reports the DEG. There are about 1.5 million Blu-ray homes, including 100,000 with set-top boxes and the remainder with PS3.
At this point, consumers have bought $55 million worth of high-def software: $35 million spanning 108 Blu-ray titles, and $19 million spanning 66 HD DVD titles, according to DEG.
“Between April and mid-December, it was a warm-up, and since Christmas, it has been a very sustained level of business,” said Warner senior VP Steve Nickerson, who presented the DEG research. “Really, this year is preparing for further consumer uptake of high-def. It will mirror the year 1999 or 2000 for DVD.”
Big push for Q4
Studios are not waiting around for high-def to take off, continuing to press for DVD market improvement.
Warner and Paramount are among the studios kicking off the fourth quarter around August in order to get a jump on courting consumers for the holidays.
“We will be aggressive at the end of August with Blades of Glory,” said Paramount’s Avery. “The fourth quarter starts earlier than last year’s fourth quarter. We are not going to wait until October to make sure we have a great [holiday season].”
Warner’s Sanders added, “The fourth quarter is coming earlier. There is Blades of Glory and 300 [streeting July 31 from Warner]. I think we will be a down a couple of percentage points from last year. But we still have a bumper of films yet to open.”
