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Studios Say Economy Accounts for Majority of Industry Trouble

3 Nov, 2009 By: Chris Tribbey

The Blu-Con 2.0 Presidents Panel included (L-R) moderator Jessica Reif Cohen, Mike Dunn of Fox, Ron Sanders of Warner, Craig Kornblau of Universal and David Bishop of Sony Pictures.

BEVERLY HILLS, Calif. — The home entertainment industry’s current malaise is 80% due to the economy, and the business should be back in growth mode by 2012. So say the home entertainment presidents of four of the six majors, speaking Nov. 3 at a Blu-Con 2.0 panel discussion moderated by Merrill Lynch senior analyst Jessica Reif Cohen.

David Bishop, president of Sony Pictures Home Entertainment, said that had the conference been held last year at this time, none of the presidents would have come.

They were too busy dealing with disaster.

“We were all too depressed,” he said. “We can’t hide from the fact that DVD was in decline 3% or 5%, but as soon as the recession hit, we all felt it in October of last year. Store traffic was down, and our sales fell.”

Now, “we’re already seeing signs of recovery,” Bishop said, as the three other panelists nodded in agreement. “There are some early titles in our business that are doing quite well. We were happy to see the results of Transformers 2.”

Paramount Home Entertainment’s Transformers: Revenge of the Fallen became the top-selling release of 2009 after its Oct. 20 release, with first-week sales of 7.5 million units, according to Home Media Research.

Blu-Con 2.0, presented by DEG: The Digital Entertainment Group in cooperation with Home Media Magazine and three other trade magazines, provided the four studio presidents with the chance to take stock of the industry, prodded on by one of the most respected entertainment industry analysts in the country.

Ron Sanders, president of Warner Home Video, said he expects sellthrough of physical discs, down just less than 14% so far this year, to rebound slightly before 2009 draws to a close, thanks to a powerful pre-holiday release slate.

“Black Friday is locked and loaded, and is going to be huge,” he said. “And we’re really backloaded this year, with several really big titles coming in December.”

Sanders predicted that 2010 will again “be down, but not as much as this year,” with recovery coming in 2011.

“We’ll be back to flat by 2012,” he said.

Mike Dunn, president of 20th Century Fox Home Entertainment, agreed.

“We think that by 2012, looking at physical and digital together, we’ll start to see growth,” he said.

Dunn maintains the economy accounts for 80% of the decline in disc purchases, with catalog exhaustion a further factor. But thanks to several encouraging economic signs, “I don’t think you are seeing the same consumer anxiety you saw last year,” he said.

Craig Kornblau, president of Universal Studios Home Entertainment, said consumers have certainly not drifted “from their love affair” with movies, noting that actual transactions for the year, once rentals are factored in, are up nearly 7%.

Bishop agreed.

“Consumers are trading down,” he said, shifting from buying discs to renting them. But when jobs return and the recession fully ends, sellthrough will be back up, he believes, because “it’s a more convenient experience.” He noted that even with rental kiosks proliferating in grocery stores and other businesses, “you still have to make two trips.”

Dunn said his studio has seen far more digital copy transfers than digital downloads, proving that consumers are enjoying the convenience of the digital copies the studios have been including with DVDs and Blu-ray Discs. Dunn also noted that 35% of sales of the recent release of Ice Age: Dawn of the Dinosaurs were premium SKUs.

“What they want is convenience,” Sanders said. “They want their content where they want it, when they want it.”

Bishop said packaged media still holds a distinct advantage over video-on-demand offerings, especially those via cable or satellite, because VOD there “is the last place the consumer goes when they turn on their TV.” Sanders agreed, noting that consumers have been well trained to expect a wait of up to two months for a VOD offering after the DVD release.

As for Blu-ray, Kornblau said he expects mass adoption of Blu-ray hardware to be well underway this holiday season, thanks to lower prices. Bishop, meanwhile, praised Sony Computer Electronics America for its new marketing campaign for the PlayStation 3, which takes the focus off gaming and puts it on Blu-ray and digital downloads.

Dunn said consumers will find retailer treatment of Blu-ray this holiday season as “sexy,” while Sanders noted that no consumer electronics product has reached 10% household penetration and not ultimately gone on to widespread adoption.

Kornblau earned laughs when he called replicators out for high Blu-ray Disc production costs, while Dunn joked he was angling for an end cap display with retailers, while noting that 60% of software sales are impulse driven at retail.

The presidents agreed that family titles continue to perform well, while the horror genre is hurting. TV DVD isn’t nearly the industry leader it used to be, they said, but mostly due to the fact that all the catalogue series have been released.

When it comes to 3D, Sanders said all the studios are waiting anxiously for Blu-ray standards and more 3D-ready HDTVs in homes.

“Frankly we’re all a bit reticent to go with the anaglyph glasses, because the experience is so bad,” he said.

Sanders also noted that electronic sellthrough will not rival physical disc any time soon, not so long as getting content to the HDTV in the living room is a pain for consumers. He and the other presidents agreed that storage of electronic sellthrough content must also be addressed, before consumers buy in to it.

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