Analysis: Home Entertainment Driving Studio Results14 Feb, 2012 By: Erik Gruenwedel
Home entertainment remains an enduring — if not divergent — profit center to studios saddled with a fickle theatrical market and rising ticket prices, according to the recent fiscal results.
While DVD sellthrough revenue continues to shrink, sales of higher-margin Blu-ray titles are strong, and transactional VOD, subscription VOD and physical rental generate increasingly significant revenue to studios with varying margins.
Warner Bros. Home Entertainment Group underscores an aggressive studio approach that embraces cloud-based digital locker UltraViolet while tweaking release windows to maximize distribution channels. Indeed, Warner’s 28-day embargo of new releases to rental channels (recently expanded to 56 days for Netflix discs) contributed to the studio’s best fiscal year ever.
“That enabled our titles last year to significantly outperform comparable titles released by other studios without a window,” Time Warner CEO Jeff Bewkes said in a Feb. 8 call with analysts. “In 2012, we’ll keep pushing to define the next generation of business models for home entertainment. As part of that we are using windows to advantage our higher contribution, distribution channels.”
Meanwhile, sales of higher-margin Blu-ray titles helped Walt Disney Studios report first-quarter (ended Dec. 31) operating income of $413 million — up 10% from operating income of $375 million during the previous-year period.
News Corp. president Chase Carey said despite the buzz surrounding digital distribution, physical media continues to generate the bulk of home entertainment revenue — a reality the COO doesn’t see changing much in the near future.
Indeed, 20th Century Fox Studios reported quarterly operating income of $393 million, up 108% from operating income of $189 million during the previous-year period. The studio said results were driven in part by global home entertainment sales of Rio, Rise of the Planet of the Apes, X-Men: First Class and Mr. Popper’s Penguins, among other sources.
“Blu-ray and electronic and digital distribution are our future,” Carey said. “DVDs have been around for a long time … but I don’t want to imply that DVDS don’t have real legs. Blu-ray has been pretty strong growth derivative. We are going to make sure we manage that business intelligently. And I think the DVD business continues to have legs.”
Lionsgate continues to mix up release windows and formats spearheaded by the early transactional VOD release of Abduction — ahead of packaged media. Digital and transactional VOD revenue for its most recent quarter increased 80%.
Nonetheless, Lionsgate/Summit Entertainment reported more than 3.2 million disc sales of The Twilight Saga: Breaking Dawn — Part 1 during the title’s first weekend of release — a tally that didn’t include 50,000 electronic sales and 80,000 transactional VOD sales.
Even Sony Pictures, which saw a 85% decline in studio operating income, said revenue increased 7.7% to more than $2 billion due in part to strong home entertainment results from The Smurfs.
Michael Pachter, analyst with Wedbush Securities in Los Angeles, said the evolving home entertainment channels represent to studios diversified revenue streams with higher margin revenue opportunities than theatrical.
“I completely agree that home entertainment is a bigger profit driver than theatrical,” Pachter said. “It’s clear that theatrical is not going to grow much.”