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Thank You, Goldman Sachs

8 Nov, 2005 By: Holly J. Wagner

I'd like to take this opportunity to thank Anthony Noto and the other analysts at Goldman Sachs for their timely vindication of my last two columns.

For the last couple of weeks I have been writing about the DVD market hitting a saturation point. Goldman Sachs projects a slowdown in DVD sales next year and beyond as U.S. DVD household penetration hits 80 percent to 90 percent of VCR households. In case you haven't been paying attention, that's anyone who lives in a community that has electricity and flush-toilets.

Home entertainment executives at the four major studios Goldman Sachs analyzed, save one, declined to comment on the analysts' report. I think most didn't want to comment because they have already acknowledged their studios reliance on DVD releases to backfill weak theatrical quarters. But their actions are speaking for them.

Warner declined comment, but what could speak louder than laying off 300 people in the Burbank studio operation, including 100 in home entertainment? The stated justification was weak theatrical and an anticipated slowdown in DVD sales.

Buena Vista didn't respond to a request for a comment, but the studio formed a partnership with Siemens, which will sponsor theme park rides and "work together to develop and further apply new technologies across a range of platforms." The company was also the first to begin offering pay-for-play downloads of its popular TV shows over iTunes. NBC Universal and Viacom's CBS quickly followed suit with downloads of their most popular shows via DirecTV and Comcast, respectively. It'll be interesting to see how much that affects one of the few growth areas in DVD, the TV segment.

Others quietly gnashed their teeth about the report behind the scenes. I think they doth protest too much.

The writing is on the wall, and a more expensive new format, as Goldman Sachs pointed out, "will not meaningfully slow the secular downturn" in DVD sales.

Some dealers noticed their traffic slowed down when gas prices went up. Gas prices are drifting down, but interest rates are going up, just as the first wave of people with shaky adjustable-rate mortgages are rolling into their adjustments. Even the National Association of Realtors has finally acknowledged the end of that industry's boom.

That's going to have far-reaching consequences well beyond the real estate industry. A lot of people will have to spend more to pay off those refinanced mortgages, the same ones they used to build home theater rooms and buy every disc that came along. If prices within and outside of our industry keep going up, a lot of home theaters may go dark, or rely on what's already on the shelf.

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