We've Got Hollywood Covered

Don’t Count the DVD/Blu-ray Business Out Yet

In fact, Blu-ray is growing rapidly, and hardware adoption is further along at this point in its lifespan than DVD was at the same point

I have always loved the opening lines of “A Tale of Two Cities”…

”It was the best of times. It was the worst of times.”

They are so simple, but so mysterious.

They make my heart race with possibilities.

So, too, with the current DVD and Blu-ray business. It is the best of times and the worst of times. Simple, but mysterious.

If you are like most of America, not closely connected to film studios, you don’t spend much time thinking about the economics of DVD and Blu-ray discs. For you, they're simply a product that you love. You can buy them, rent them, get them at the corner video store, in the mall, or in the mail.

You can get them from a vending machine or you can even get them manufactured on demand made just for you and sent to your home. You love watching movies on discs and continue to watch them — in huge numbers.

Really? Yep. The facts are that there were more total sale and rental transactions in 2009 than the year before: over 3.1 billion total transactions in 2009.

True, sale transactions are down year over year, but rental transactions are up — more than compensating for the reduction in sales.

For the uninitiated, this is the heart of the studio issue: Units sold at retail produce a higher margin for the studios than rentals, therefore the change in mix creates a net reduction in studio margins.

Unfortunately, many pundits seem to take the easy way out, suggesting that because studios are making less money there is, ipso facto, a fundamental long-term change occurring with consumer's love of packaged media. 

OK, I would admit that this may be the case, but I think the issue is more nuanced.

While there is no denying that the packaged media business is in a mature phase and that the heady days of consumers building big DVD libraries may have passed, it is also true that we are in a world of 10 percent unemployment. In fact, many mass retailers are saying that the products that matter most to consumers right now can either be eaten or put on their face.

Yet, even in this asymmetric environment, one observation is that Blu-ray is growing rapidly, and in fact, Blu-ray hardware adoption is further along at this point in its lifespan than DVD was at the same point. To me, this is more than a "green shoot" fact.  To me this says that the actual experience of watching movies is still very important to consumers and that they will buy better machines and more movies to continue to feed their love. 

And this may be one of the keys. Consumers are speaking very clearly. They want a great experience. One example is "Avatar." Another is that a growing percentage of new release sales are Blu-ray. New releases now routinely achieve 15 percent of their sales from Blu-ray, and this percentage grows every quarter.

Of course, the studios do have a powerful challenge: how to sustain this consumer love affair and continue to provide a great experience while also selling and renting more units of DVD/Blu-ray discs to increase their margins.

More retail distribution points will help. Clever marketing campaigns will help. Finding appropriate pricing levels will help. Continuing to partner with key retailers will help. But maybe the most important thing is to continue to remind and reinforce that watching a movie on disc at home is a terrific entertainment experience.

Great in DVD. Better in Blu-ray.

So many directors have made the point that watching their movie in Blu-ray was simply a new and wonderful experience for them. Academy Award winning filmmaker Martin Scorsese recently said, “Blu-ray is going to extend the life of a movie, allowing the film to be seen as closely as possible to how it was intended to be.”

So, why is there so much coverage of the "alleged" melting DVD business? Why is no one telling the real story? Why is no one saying that it is the changing mix of consumers renting more and buying less that is playing havoc with the existing studio DVD/Blu-ray economic models rather than consumers falling out of love with the product?

Why is no one saying that consumers love our products and continue to support them even in a very difficult economic environment? (unemployment at 10 percent, sales down 13 percent. A correlation? Hmm, I think so).

Sure, the business is evolving, but c’mon, it ain’t going away.

So, while there continue to be lots of one-note stories about how the packaged media business is dying, it would be nice if some real imagination were applied to telling the more interesting story of our business. That story is what are the studios doing to alter their marketing, sales and financial strategies to maintain and even grow their businesses, without damaging their terrific relationship with a vibrant, loyal and satisfied consumer.

Now that is an interesting story.

Eric Doctorow has been a respected studio executive for over 27 years. He was the president of Paramount's Worldwide Home Entertainment division for 10 years, and is the current GM of MGM Worldwide, a position he has held for the past four years. He is responsible for all facets of managing MGM's worldwide home entertainment business through its association with Twentieth Century Fox Home Entertainment.