Report: Blu-ray Can't Overcome Escalating Movie Costs20 May, 2008 By: Erik Gruenwedel
Despite the emergence of Blu-ray and projected 14.6% annual growth of electronic media through 2011, spiraling movie production costs threaten studio margins, according to a new report.
Adams Media Research found that while major U.S. studio feature film revenue is projected to grow 6% annually from $34.9 billion in 2007 to $41.6 billion in 2011, film budget expenses are growing 10% annually.
Major film budgets expanded from $46.9 million in 2004 to $63.2 million in 2007, fueled in part by third-party investment from private equity firms, according to the report. Consequently, expenses for Motion Picture Association of America (MPAA) member studios grew from $9.7 billion to nearly $13.2 billion.
Tom Adams, president of Adams Media Research, said the arrival of DVD helped studios generate 50% of their revenues. He said Blu-ray would not have the same impact, and new media sources of incremental revenue such as electronic downloads and streaming would only slightly ease the margin declines.
“Although we expect continued revenue expansion, the market won't be returning to DVD-era growth anytime soon, so it's crucial that studios pare down expanding costs and wisely manage upcoming film slates to maximize their profitability,” Adams said.