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Chernin: Player Scarcity Holding Back Blu-ray Adoption

7 May, 2008 By: Erik Gruenwedel



News Corp. president and COO Peter Chernin said a dearth of Blu-ray players at retail continues to hamper wider consumer adoption of the next-generation format.

News Corp. is parent to 20th Century Fox Home Entertainment, among other studio assets.

In an analysts call, Chernin said many retailers carry just one or two Blu-ray players, which he said has necessitated a manufacturing push for third-generation players.

He expects the new players to reach the market by the summer and contribute to an upswing of both player and movie sales through the fourth quarter.

The COO said News Corp. remains bullish on Blu-ray due to the format's higher margins compared to standard DVD. He said if margins remain constant and players become abundant, year-end industry Blu-ray revenue could reach $1 billion.

“We think these [Blu-ray] discs are more valuable [than standard DVD],” Chernin said.

The COO said Fox would begin releasing limited titles on cable video-on-demand (VOD) the same day as the DVD.

Chernin said the studio would not emulate Warner Bros.' recent decision to release a majority of its movies simultaneously on VOD and DVD, citing ongoing monitoring of tests to determine whether the strategy cannibalizes DVD sales.

“It is too soon to declare we are going to release all our [movies] day and date,” Chernin said. “VOD will continue to rapidly grow. I would expect it to be overwhelmingly additive.”

When asked whether the studio still eyes distributing DVD rental via Blockbuster and Netflix, Chernin said Fox would continue to be a player while stressing that sellthrough margins greatly exceed DVD rental.

“In the last 10 years, margins are higher in sellthrough than the rental business regardless of the delivery model,” Chernin said.

The filmed entertainment segment of News Corp. reported third-quarter fiscal 2008 (ended March 31) operating income of $261 million, down 36% from a record $410 million during the prior year's same period.

The company said residual DVD sales of The Simpsons Movie, Live Free or Die Hard and Fantastic Four: Rise of the Silver Surfer were hard-pressed to beat comparable sales of Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan, Night at the Museum, Devil Wears Prada and Little Miss Sunshine during the prior-year period.

Filmed entertainment segment revenue, driven by Alvin and the Chipmunks and Oscar winner Juno, topped $1.6 billion, compared to $1.8 billion last year.

Chernin admitted the company's interactive segment, Fox Interactive Network, whose properties include MySpace and Hulu, would not meet prior 80% growth projections by about $10 million.

“Our shortfall will be slight,” he said. “It's still difficult to quantify a ‘friend' in the social media space.”

He said Fox Interactive Network was still on target to generate $1 billion in revenue in the next three years.

Overall, News Corp. revenue exceeded $8.7 billion, compared to $7.5 billion last year, driven largely by television (such as the Super Bowl telecast), cable networks and the recent Dow Jones (The Wall Street Journal) acquisition.

Net income topped $2.6 billion, compared to $871 million last year.

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