As DVDs Die, Hollywood Finds a New Revenue Stream — Old Movies

‘It feels like it’s raining pennies and nickels, but a rainstorm is coming,’ says a home entertainment executive of the custom DVD and streaming services

Last Updated: January 19, 2011 @ 12:51 PM

With the DVD market in free fall, Hollywood studios are getting creative about finding new ways to pump up the home-entertainment dollar.

Now you can have a custom-made copy of Anne Bancroft’s “The Pumpkin Eater” or Meryl Streep's psychological thriller "Still of the Night."

Over the last year, MGM, Warner Brothers, Sony and others have begun to offer obscure, previously unavailable movies via DVD-on-demand and streaming. For a fee of approximately $20, many of the major studios will now burn select titles to disc.

By custom-burning DVDs or streaming cult-favorite films from depths of their libraries — movies that haven't been popular enough to render big DVD factory runs profitable — studios are replacing some of the revenue they are losing from the wilting sales of new releases.

Read also: New to DVD — Movies & TV Shows to Custom Order on Demand (Slideshow)

The revenue far from compensates the erosion in recent years from the $21.8 billion the industry made from home entertainment at its peak in 2004.

(When adjusted for inflation, that figure fell roughly 26 percent to its current $18.8 billion mark, according to a recent report by the Digital Entertainment Group.)

“It’s a niche business, but it feels like it’s raining pennies and nickles. There’s a rainstorm coming and the money could start piling up,” Eric Doctorow, general manager of Metro-Goldwyn-Mayer Worldwide, told TheWrap.

For their part, film buffs are pleased that studios are raiding the archives.

“I think it’s a great thing that studios are opening their vaults to the individual consumer this way. In a sense, these disc-on-demand services are an acknowledgement that there are serious needs not being met by standard DVD marketing,” Tim Lucas, editor of Video Watchdog, told TheWrap.

To sell the films, studios have set up websites outlining their offerings or have partnered with new media giants like Amazon to hawk their wares. In addition to allowing users to buy discs, the companies are also offering many of the previously unavailable films through iTunes and for streaming through Netflix.

“DVD is going to remain an important component of our distribution strategy, but we need to keep enhancing our capabilities,” Richard Berger, Sony Home Entertainment’s senior VP of global digital strategy & operations, told TheWrap. “It’s part of a larger strategy to make content available to concerns through multiple touch points and through many different channels.”

Though it isn’t a massive moneymaker yet, studios say they are turning a profit on the nascent business. (None will specify exactly how much.)

“Necessity is the mother of invention, but this would have been a good idea even if the business wasn’t growing the way it was,” Doctorow said.

Though Blu-ray is growing, the market for the higher-end discs isn't expanding enough to make up for the constricting DVD market. Overall, the home entertainment market is down 3 percent since 2009.

“Part of problem is there is user fatigue at the same time the economy is weakening. Consumers have built up their film libraries, and they’ve decided they have enough DVDs. This all correlates with a time in which there is less disposable income,” Edward Woo, an analyst with Wedbush Securities, told TheWrap.

That said, the idea for a DVD-on-demand business predates the current crisis. Warners, which kicked off the trend, started planning its own service in 2006 as an extension of a popular service in re-packaging and re-releasing rare movie soundtracks.

But part of the gambit was betting that buyers would pony up cash for movies that in many cases were only dimly remembered.

In that, case Netflix was a veritable petri dish for how to exploit catalogue titles. The subscription rental giant upended the traditional video rental model as typified by Blockbuster and its shelves filled with new releases, by building a business on older films.

In contrast to the bankrupt Blockbuster, as many as 70 percent of the films that Netflix rents are catalogue titles.

“They might not be the hottest, latest new release, but a great movie from 1972 is still a great movie,” Steve Swasey, a spokesperson for Netflix, told TheWrap.

Warners finally launched its service in December 2009 with 150 titles. Universal, Sony, MGM and Fox have followed with their own programs shortly thereafter, and plan to keep expanding their offerings.

Sony started with 100 titles when it launched in September and has since added about 20 films, while MGM plans to eventually offer 400 movies and television show through the service.

The films range from the Shirley MacLaine crime caper “Gambit” to the Oscar-nominated drama “I Never Sang for My Father” to episodes of the 1980s television series “Hart to Hart.”

All are titles that have a built-in audience, but couldn’t attract a large enough buzz to interest retailers like Wal-Mart or justify a nationwide roll-out.

“All of the studios have libraries that they are not fully exploiting, but retailers have a limit to the amount of product they’re willing to take,” Doctorow told TheWrap. “This is a financial formula that works. It’s win, win, win. It’s a win for consumers who get product retailers wouldn’t stock, and its good for us because it generates additional value from our library.”

Instead of stamping out DVDs at the factory, these discs are custom burned for buyers. Selecting which titles are going to be made available via the service is determined based on past consumer requests, as well as the quality or the original negative.

Meeting those needs by appealing to film aficionados is also a good way to keep the market for DVDs humming, even while analysts are largely predicting the platform’s decline and fall. In many ways, it’s analogous to the way record companies kept music lovers craving vinyl long after average consumers had migrated to tapes and compact discs.

“If you’re aggressive with your library. If you care about wanting to monetize it and please your shareholders by bringing incremental revenues to the company, it’s a really good thing. I thought by Christmas of last year, every studio would be in this business,” George Feltenstein, senior vice president of theatrical catalogue marketing at Warner Brothers, told TheWrap. 

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