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The Other Bubble

12 Jul, 2005 By: Holly J. Wagner

The business world is all abuzz over perhaps the biggest and most burning issue in personal finance today: Is there a housing bubble?

Pundits ring in on both sides, but the one thing they seem to share an opinion on is that it's not a bubble until it pops. Federal Reserve chairman Alan Greenspan says it's not a bubble, but some markets are seeing “froth.”

The recent heightening of the pitch of debate, juxtaposed against a crappy year at the box office and what some quarters report as slowing DVD sales, makes me wonder if we are watching the air hiss out of an entertainment bubble.

If you look at it like any other business, DVD has experienced irrational exuberance for quite a while. Although prices weren't running up, sales volume certainly was. But now that we've seen hardware sales taper off, is it really any surprise that software sales are flattening out as well?

Analysts are talking about “DVD clutter” at retail, stores are struggling to find enough shelf space and studios are jamming each Tuesday with as many titles as they can force into the pipeline before the new format comes in.

Meanwhile, prices have been going down, but perhaps so has the consumer “interest rate” — if you define it as the rate at which consumers get interested in new titles.

American consumers aren't really famed for their attention span anyway. And with so many choices, perhaps the entry and growth of budget DVD product is funneling money away from recent titles that haven't really generated much interest.

There is another possibility: that our industry is a barometer of the economy as a whole. Think about it: When times get tight, the first things most people start trimming from the budget are meals out and entertainment. It's interesting that studios release products in windows that, because of their relative cost, will get crossed off the list in order. If you're scaling back entertainment costs, the movie theater will be the first thing to go, but DVD will be next. Rental, PPV and budget discs can hold out the longest in this environment, because they have the lowest relative cost to the consumer.

So, what do you think? Are we showing the signs of a deflating bubble economy for entertainment? Or is a crappy release slate alone really enough to make such a difference in consumption habits? Drop me a line at hwagner@questex.com.

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