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Viacom CEO: Declining DVD Sales Have Altered Moviemaking Economics

19 Sep, 2012 By: Erik Gruenwedel

Viacom CEO Philippe Dauman told an investor group that the ongoing slowdown of disc sales of new-release movies continues to reverberate through Hollywood, leading studios to rework the entire economics of moviemaking, among other issues.

Speaking Sept. 19 at the Goldman Sachs Communacopia Conference in New York, Dauman said multiplatform pay-TV platform Epix (which is co-owned by Viacom-owned Paramount Pictures), Redbox and subscription video-on-demand services continue to supplant slumping DVD sales only to a point.

Dauman said previous assumptions regarding packaged-media sales of movie have changed to the point that when greenlighting a feature film, Paramount has restructured deals made with actors, producers and directors to better reflect a “partnership” relationship on the economics of the film rather than a high upfront cost.

“We don’t mind sharing the upside [of a movie with talent] as long as we don’t have a downside, or we have a sharing of that risk,” he said.

The executive said it is no longer to tenable to make “huge” upfront payments to talent with an increased uncertainty on the backend due to slumping disc sales.

Indeed, until recently packaged-media sellthrough generated (and often guaranteed) a lion’s share of a film’s profit. As consumers buy fewer new releases at retail, studios have scurried to reconfigure contracts, in addition to mining for incremental revenue from alternate channels such as digital distribution.

“We’re now making conservative assumptions in that regard,” Dauman said.

As a result, Viacom has joined a bandwagon of content owners seeking revenue and attractive margins licensing programming to SVOD services such as Netflix and Amazon Prime Instant Video, among others.

“Happily, digital revenues are growing but it’s not a perfect transference [with disc sales] at this point,” Dauman said. “The rate of decline up until this point has been pretty significant on the DVD side. It’s not going away, but I don’t personally expect that it will go back to where it was.”

To that point, Epix recently began licensing its portfolio of Paramount, Lionsgate and MGM movies to Amazon Prime after an exclusive deal with Netflix expired. Netflix continues to stream Epix fare on a non-exclusive basis. The CEO said launches of Paramount-themed channels in Europe and Latin America auger well for future revenue growth on the content side of the business.

“The way we look at the movie business is that we want to create great films and we want to manage the downside, the risk/reward equation if you will,” Dauman said. “We’ve had a good relationship with Redbox, which has worked out well for us economically. We look at sorts of revenue opportunities.”

Finally, the CEO reiterated that SVOD services do not represent substitutes to linear TV viewing — a reality he said Viacom guarantees by licensing content different from the fare distributed by cable, satellite and telecommunications services.

“[SVOD] has been very additive, and in fact, one could argue that distributors are saying that Netflix is helping drive their businesses,” Dauman said.

About the Author: Erik Gruenwedel

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