Warner Bros. CEO: DVD Market ‘A Lot Longer’ Than VHS

Despite rapid-fire changes within the home entertainment industry, including streaming and VOD, Warner Bros. chairman and CEO Barry Meyers believes packaged media has quite a few years left atop the distribution food chain.

Speaking Sept. 16 at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Newport Beach, Calif., Meyer said the Time Warner Inc. studio unit noticed stabilization within the disc market in the second quarter following several quarters of decline.

“It was a flat market,” Meyer said, adding that the focus remains on the orderly transition from a physical market to a digital market. “We don’t think it is going to be an overnight transition or a long-term transition, but a transition nevertheless.”

Warner Bros. was one of the first studios to bow new-release titles on transactional video-on-demand (VOD) at the same time as DVD and Blu-ray Disc.

He said the transition has always been about generating higher margins, which Meyer said was the catalyst for migrating from VHS to DVD. Meyer said DVD, unlike VHS, represents the essence of marrying innovation and portability with packaged media.

“The physical DVD market is going to be around a lot longer than VHS was,” the CEO said. “That little silver disc is a pretty ubiquitous thing. It is high quality, usable on a lot of different devices, portable and all that. And until we start getting digital into that place that is as ubiquitous, playable on multiple devices and as portable as [DVD], I think you will see physical hanging around for a long time.”

The executive said 28-delay to kiosk vending has resulted in improved transactional VOD, including the install base of VOD households and high-definition transactions.

“We believe VOD has benefited 20% to 30%,” Meyer said, adding that much of the success of VOD depends on the movie title. He said industry-wide data has shown that the normal steep decline in packaged media sellthrough has actually been flattened out over a longer period of time.

“Instead of coming quite so steeply, it actually declines much more gradually,” Meyer said. “We’ve seem much higher buyer activity in weeks two through four than we have before. What we frankly don’t get is why everybody isn’t doing it.”

Meyer said the recent $1 billion deal Netflix signed with pay-TV channel Epix represents tweaking of the traditional pay-TV window. He said Warner’s recent content deal with Netflix involved largely older catalog product and one recent cable TV series (“Nip/Tuck”). He said that should Netflix evolve into a player in the pay-TV space challenging HBO and others, it would be good for competition and possibly license fees.

“We welcome new buyers into the [mix], but [while] we welcome new competition into the market, only to the extent that the new buyers don’t upset or diminish the economic infrastructure that is [currently] in place,” he said.

Meyer said the 3D format would continue to grow as long as consumer perceived it as value-added to the entertainment experience both in the theater and in the home.

“It is an opportunity if used in the right way,” he said. “It is not the be-all-end-all.”

The CEO said forays into premium VOD, whereby titles are released in a pay-per-view window shortly after theatrical release and before packaged media and VOD, would remain an experiment.

“I think there is a thought among [studios] that there is room for a window in there,” Meyer said. “But, we do have big entrenched interests on both sides of the [issue].”

Specifically, the CEO the studio has to be mindful of longstanding relationships with movie theater operators and the home video retail market, which both have very strong concerns about premium VOD.

“It’s a tricky piece of business,” Meyer said, adding that he believes any premium VOD releases by Warner Bros. would occur in 2011 at the earliest.

“My own view is that a 30-day window after theatrical is way too short,” he said. “But I don’t think there has been any conclusion on the window or the pricing.”