Relax, You Chicken Littles9 Feb, 2009 By: Stephanie Prange
While the country is going through economic turmoil, the movie business celebrated a record more than $1 billion box office month in January. On the home entertainment front, Netflix posted growth in both profit and subscribers in the fourth quarter. But these bright spots haven’t insulated the studios from layoffs or pundits who say the sky is falling on packaged-media demand.
Why the panic? The movie finance model is built on studios selling DVDs to consumers. If that demand flags, the movie business will suffer wrenching change.
Walt Disney Co.’s Bob Iger — usually a cheerleader for packaged media — sounded a somber note during last week’s fourth-quarter call, sending shivers through the analyst community. “We do believe that the cost of both producing, distributing and marketing the DVDs needs to be addressed,” he said.
Are the Chicken Littles right? Let’s examine the numbers.
The latest numbers for home video came from the Digital Entertainment Group during the Consumer Electronics Show. They showed sellthrough was indeed down from $16 billion in 2007 to $14.5 billion for DVD with another $400 million for Blu-ray Disc in 2008, putting the year’s total at $14.9 billion. Disc shipments dropped from 1.6 billion in 2007 to 1.4 billion in 2008. In addition to Disney, Fox and Warner also reported a downturn at their studios. But much of that downturn, I think, can be attributed to factors other than a lack of demand for discs.
Yes, the disc business is down, but so far it has held up remarkably well in the worst recession home video has ever experienced and with the headwind of a format changeover. Consumers may be holding off buying DVDs in anticipation of buying Blu-rays.
SNL Kagan last week reported that the Blu-ray Disc format will attain nearly 60% market share in 2014 and generate $13.1 billion in revenue — and that’s without any billions DVD might kick in. The disc may be experiencing a slump, but the economy is in an unprecedented downfall, making that dip look small by comparison.
Here’s some advice for Iger, Chernin and Bewkes.
Go to Target (or some other mass merchant). I did, and I found plenty of sold-out discs and one shopper (buying the Bourne Trilogy at more than $80) who said he wanted more classic titles on Blu-ray. Satisfy him, and profits will return.