From The New York Times - Friday November 21, 2008
By BROOKS BARNES
LOS ANGELES — Conventional wisdom holds that Hollywood’s fortunes go up when the economy goes down. People still crave entertainment, particularly of the escapist variety, and movies remain within the budgets of most people.
That may prove true this time around, too — ticket sales have been particularly robust in recent weeks — but studio prosperity stopped depending on box-office results a long time ago. DVDs propel profits these days, and there is a creeping dread in the movie capital that buyer interest is plummeting as the global economic crisis worsens.
“Every studio is claiming, ‘We’re O.K. so far, but we’ve looked at the overall competitive sales data and we have some concerns,’ ” said Amir Malin, a partner at Qualia Capital, an investment firm whose assets include several large film libraries.
So far, total DVD sales are down by about 4 percent for the year, with most of that weakness coming in October, according to data compiled by Warner Brothers, the largest distributor of DVDs. The independent tracking service Nielsen VideoScan paints a bleaker picture, reporting a 9 percent drop in overall DVD sales during the third quarter alone and a 22 percent decline in sales of higher-priced new titles, although its data does not include results at Wal-Mart.
Most troubling, industrywide sales of next-generation Blu-ray discs — promoted as a high-definition technology that will restore growth to the medium — are growing but will miss sales projections for the year by 25 percent or more, according to Warner.
Weak consumer spending is not the only culprit. Media companies, desperate for revenue, are dumping more obscure titles on the market, leading to downward pricing pressure, according to Distribution Video and Audio, a home entertainment overstock company in Burbank, Calif. Consumers are being more selective. There are signs that digital downloads are cutting into sales.
And Blu-ray discs still cause widespread confusion in the marketplace, with shoppers doubtful Blu-ray is here to stay after a lengthy format war with a rival technology. Indeed, 57 percent of standard DVD customers say they are “waiting to make sure Blu-ray is really the standard the industry will stick with,” according to an industry study released last week.
“As a result, a number of consumers are sitting on the sidelines and not buying anything,” Mr. Malin said.
Studio executives prefer to look on the bright side, saying the DVD market is stronger even in decline than other media businesses, like broadcast television. Studios say the economic downturn might actually help kindle sales of high-definition discs because the supply of Blu-ray players is likely to sharply exceed demand in the coming holiday season, pushing down prices.
A year ago, the cheapest high-definition players cost about $500, according to David Bishop, president of Sony Pictures Home Entertainment. Retailers like Wal-Mart and Best Buy are now poised to sell machines at $199, with Black Friday promotions bringing the cost as low as $128. Player sales jumped in October compared with the same month a year ago, Mr. Bishop said, even as most other retailing categories had sharp declines.
Hollywood has been counting on Blu-ray to drive its crucial home entertainment business. After years of rapid increases, domestic DVD sales fell 3.2 percent last year to $15.9 billion, according to Adams Media Research. It was the first annual drop in the medium’s history.
DVDs remain a blockbuster business, but any decline is cause for concern because disc sales on a worldwide basis can account for as much as 70 percent of revenue for a new film. Blu-ray discs, which use a Sony technology that includes interactive bells and whistles, typically sell for 25 percent more than standard DVDs.
Underscoring the alarm, the major studios are working to push DVDs in general and Blu-ray in particular. The studios, along with several consumer electronics companies, are spending $25 million on a television and print advertising campaign that highlights coming releases from the Walt Disney Company (“Wall-E”), Sony (“Hancock”) and Warner (“The Dark Knight”).
“We think this is a do-or-die time for Blu-ray,” said Ron Sanders, president of Warner Home Video. “We must get it established as a favorite holiday item.”
Individual studios, meantime, have also been mounting solo assaults. Disney released “Sleeping Beauty” on Blu-ray and standard DVD last month, taking the unusual step of including a free standard DVD in the Blu-ray package to spur interest. Disney is also working with Panasonic on a “Blu-ray demystification” television and online campaign.
Universal Studios Home Entertainment staged a lavish party last week at a Hollywood nightclub to promote the Nov. 11 release of “Hellboy II: The Golden Army” on DVD and Blu-ray. A spokeswoman said it had been years since the studio organized such an expensive DVD event.
Retailers also count on DVD sales, and the biggest chains are planning to put more muscle behind the category. Chains are dedicating more shelf space to the medium (at the expense of CDs and video games) and Wal-Mart plans to spend $30 million advertising home entertainment products during the holiday season, according to several studios. Best Buy is devoting more resources to in-store displays.
Last week, the presidents of home entertainment from the top seven Hollywood studios took the unusual step of participating in a joint symposium in Los Angeles that draped the high-definition push in favorable statistics. Regarding recent declines in DVD sales, Amy Jo Smith, executive director of the Digital Entertainment Group, a trade organization, told the audience, “In the face of the current economic crisis, this is really a remarkable performance.”
Indeed, home entertainment has held its own during previous economic downturns, giving some studios hope that declines will be modest. An uptick in overall sales at Wal-Mart as the economy declines is also soothing studio nerves, although Circuit City’s decision to enter bankruptcy protection poured some rain on that parade. “We’re cautiously optimistic about the fourth quarter,” said Mr. Bishop of Sony.
Without question, DVD bright spots remain. Direct-to-DVD movies in the family genre have shown strength, with “Tinker Bell” from Disney easily selling a million copies in its first week in stores, well exceeding expectations.
Movies that have crossover appeal with video game enthusiasts are also proving resilient. “Hellboy II,” for instance, is beating sales projections by about 10 percent, according to Craig Kornblau, president of Universal Studios Home Entertainment. “The Incredible Hulk,” released by Universal on Oct. 21, also sold well.
“I’m feeling really bullish, and I’m not being naïve,” Mr. Kornblau said.
"Most troubling, industrywide sales of next-generation Blu-ray discs — promoted as a high-definition technology that will restore growth to the medium — are growing but will miss sales projections for the year by 25 percent or more, according to Warner."
If the studios would price the product right it would sell, i.e.:
Title.............. MSRP.... Street (Amazon)
Wall-E DVD..... $29.99...$14.99
Wall-E Blu-ray.. $35.99...$24.49
The premium for Blu-ray MSRP is 20%, but the Street premium is 63%! The Street pricing for Blu-ray should be on par with the regular DVD release and be: $17.99. Probably if they priced Blu-ray equivalently, they would sell more.
I'll buy the Blu-ray release for $17.99, but not $24.49.