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A Year in Home Entertainment

23 Dec, 2008 By: Thomas K. Arnold

It’s the economy, stupid.

The immortal words of Clinton consultant James Carville became a mantra of sorts for home entertainment in 2008, as industry leaders found a convenient — and not altogether inaccurate — scapegoat for the continued downturn in the DVD business and the slower-than-expected takeoff of Blu-ray Disc.

The year had gotten off to a rocky start. A bitter format war between two rival high-definition, optical-disc formats, Blu-ray and HD DVD, was still raging. DVD sales were softening, and analysts were predicting that packaged media’s days were numbered because before too long, everyone would be digitally downloading movies, TV shows and other entertainment programming.

The abrupt end of the high-def disc format war, which came about in mid-February when Toshiba pulled the plug on its losing HD DVD technology, was hardly the victory Blu-ray backers had hoped it would be. Analysts opined that it hardly mattered, due to the onslaught of digital downloading, while a series of missteps on the hardware end — most notably, consumer confusion about the various player profiles and what they could and could not do — hindered adoption.

But just when seasoned industry observers were gearing up for another round of “the sky is falling” predictions came the thunderous hits that brought our nation’s economy to its knees. First came sky-high gas prices; next, the meltdown in the mortgage industry; and, lastly, the onset of a true recession, complete with bank failures, government bailouts and a protracted period of uncertainty over what’s next.

And all of a sudden, home entertainment’s prospects don’t look so bad, given that everything around us is crashing and burning. We’re once again hearing talk about home entertainment’s resiliency in hard times, and the fact that consumer spending on home entertainment is running about 3% behind last year isn’t seen as a disaster of epic proportions, as it might have been in less-challenging times.

A minute fractional downturn in the business equates to weathering the storm quite nicely — particularly since digital downloading, the great hope of analysts everywhere, has failed to even remotely pick up the slack. Indeed, packaged media is holding its own quite nicely. On the sellthrough front, DVD sales may be trending downward, but Blu-ray Disc is rapidly gaining ground, with expectations that software sales could hit $800 million this year, nearly three times what they were in 2007. And on the rental end, subscription services and kiosks are shoring up the business, more than making up for any downturn in brick-and-mortar stores.

As Ron Sanders, president of Warner Home Video, said in early December, “Flat is the new up.” And that was about a week before Warner’s The Dark Knight gave packaged media exactly the sort of spark it needed to finish the year on what’s looking more and more like a high note.

The Batman sequel sold 13.5 million copies worldwide its first week in stores — 1.7 million of them on Blu-ray Disc. The release outperformed even the most optimistic projections and, coupled with better-than-expected Black Friday sales for both Blu-ray Disc software and hardware, is turning frowns to smiles all over Hollywood. Studio executives who as recently as November were predicting the year would end with a 6% or 7% decline in total consumer spending on home entertainment are now saying the slippage could be as minor as 3% or 2% —small potatoes, given the current economic climate.

Sony Pictures Home Entertainment president David Bishop’s comment in early 2008 that home entertainment leaders were “cautiously optimistic” about 2008 appears to have held true. Home Media Magazine’s market research department projects consumer home entertainment spending — DVD and Blu-ray, sales and rentals — will finish the year at $22.9 billion, down just 3.4% from the $23.7 billion they spent in 2007. And much of that is due to a decline in DVD purchases as consumers transition to Blu-ray Disc.

“It’s really only a matter of time before we pick up the slack and packaged media sales are once again in positive territory,” quipped one observer.

Indeed, the rapid gains Blu-ray is now making in both software and hardware sales hasn’t gone unnoticed, prompting home entertainment industry leaders to once again view the future with guarded optimism.

“Consumers are telling us that Blu-ray is the future of home video entertainment,” said 20th Fox Home Entertainment president Mike Dunn. “If you have an HDTV, you can’t maximize your entertainment experience without Blu-ray.”

“Blu-ray revolutionizes the way people can watch movies in their homes,” added Bob Chapek, president of Walt Disney Studios Home Entertainment. “It’s really become the definitive way for people to experience true high-definition movies at home.”

Still, there’s a lot of uncertainty as the year winds down. Businesses of virtually all kinds are in trouble, and one of the most popular features on AOL is an article predicting that several major retail brands, including Chrysler and Rite-Aid, won’t make it through 2009.

The malaise has certainly touched down in Hollywood. Most major studios have already had significant layoffs, with more rumored to come in January.

But don’t blame home entertainment. It’s the economy, stupid.


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