For years now, there’s been rumbling that the DVD market – the studios’ most reliable and robust cash cow – has been flattening, with Hollywood treating the news like a 4.1 level earthquake in Corona.
But in recent weeks, it’s become clear that this is no tremor -- more like a 6.6 level seism running right down Hollywood Boulevard.
As home libraries have reached saturation levels and audiences have sought new forms of entertainment (as in, videogames and the Internet), consumer spending on home video entertainment has been on a downward spiral, dropping to $22.4 billion in 2008 from a peak of $24.9 in 2004, according to the Digital Entertainment Group.
The numbers for DVDs alone are even less comforting. After reaching a peak in 2006 with rentals and sales of $24.1 billion, they've declined to $21.6 billion in 2008.
Even new blockbuster releases are not making a ka-ching sound when they move to DVD.
And the introduction of high-definition DVDs is not proving to be the saving grace that studios had prayed for.
The end of the DVD gravy train isn’t just bad for shareholders and studio heads. Creative Hollywood will feel it too. It will affect negotiations with the Screen Actors Guild, given that studios can plainly argue that, without the ballast of DVD income, they need a bigger piece of the Internet pie.
All of this has been in the ether in recent years, but now there are actual numbers, and they’re not pretty.
Last week, Viacom reported that its filmed entertainment profit plunged 81% last quarter, to $22 million – and its home entertainment sales dropped 6% to $1.02 billion.
At NewsCorp., operating income at the Fox Filmed Entertainment group dropped 72% to $112 million – and DVD sales fell 15%.
At Time Warner, although operating profit at the film division was up 6%, sales of DVD titles were down a staggering 24%, even though Warner Bros.’ “The Dark Knight” was the top-selling DVD of 2008.
Disney’s operating income for its film studio plummeted 64%, with DVD sales sliding a drastic 33%, a drop that not even “Wall-E,” one of the top-selling DVDs of 2008, could buffer.
Quarterly results for Sony, GE and Lionsgate were also bleak.
Almost unanimously, studios have blamed the recession for their dismal report cards. Viacom CEO Philippe Dauman said that the “sharp downturn … is attributed to the economy,” and that, “I don’t think there’s enough data in this environment to analyze what the secular trends may be.”
All across Hollywood, the message from the studios has been: It’s the economy, stupid.
But others beg to differ.
“I think it’s one part recession, but there are bigger factors,” said producer Bill Mechanic, the former head of Fox Filmed Entertainment, who oversaw Disney’s homevideo division in the 1980s.
Mechanic says that one of those is that the introduction of hi-definition discs has created a pricing conundrum.
Assuming that consumers will replace their traditional DVD collection with hi-definition discs, studios are dumping the prices of regular DVDs.
