noted before

DVDs triumphant

In an eye-opening article journalist Jon Gerner in the New York Times Magazine (“Box Office in A Box”, 11/14/2004) confirms a trend we have noted before; namely, that the DVD, not the theatrical release, has become the major profit center for the big Hollywood studios.

He points out that this year “63
percent of studio feature-film revenue in the United States will come
from movies sold to retail stores; actual box office will generate only
21 percent
.” In other words, the box office numbers that we see
reported each Monday are secondary to the number of discs sold at
Wal-Mart, Target, and Best Buy.

DVDs, which used
to be released eight or ten months after the theatrical release, now
come out four or five months afterward. It used to be thought that the
video revenue was the icing on the cake, but now it seems that the
theatrical revenue is just the appetizer for the real meal. For that
reason, DVDs are termed by some the “corporate ATM machine” for
studios.

The studio's
home entertainment divisions are getting more and more powerful and are
starting to influence decisions about what gets made and how it is
packaged. Theatrical releases are getting to be less critical. As the
article puts it, “[I]t's not hard to find Hollywood insiders right
now who think the movie theater as a communal experience is dying and
that big-screen releases have little economic function beyond marketing
for DVD rollouts
.”

The taste of DVD buyers is turning out be an exaggeration of those of regular moviegoers.
For example, broad comedies and big action films do even better on DVD
than in the theatres, serious dramas never do as well. The notion is
that buyers can imagine watching “Shrek 2” or “The Matrix Reloaded” a
dozen times, not so for “Mystic River.” Certain stars (Will Ferrell,
Gene Hackman) are apparently big draws for retail shoppers. And it's
inevitable that casting and script decisions are starting to be
reviewed (and modified) by the DVD marketers.

Unlike
theatrical releases, DVDs are low cost to produce and market, and bring
in major income. The article estimates that each DVD sold clears $9 in
pure profit for the studio. But getting that profit has meant that the
movie business has had to deal with the big retailers in a way it never
has had to before, becoming in some ways a consumer product company
like Proctor &
Gamble or Unilever. “They must negotiate directly, and often fiercely, over everything from prices to advertising support to shelf space.”

According to the
article, studios are talking to key retailers like Best Buy and
Wal-Mart even as projects are shooting in return for the chain's
analysis of which DVDs are selling and other buyer behavior. Wal-Mart,
as usual, is the dominator, with what is estimated as 22 percent of all DVD sales, and up to 40 percent on some big hit DVDs.

Another area where the DVD is having impact is in changing the shelf life of older movies. It's padding the bottom line for companies like Disney, Time-Warner, and Fox with extensive film libraries still under copyright. The $5 billion that Sony paid for MGM
recently was not for its current films (MGM had produced only a few
each year), but for the vast library of MGM and United Artists films
(4,100) the company held.

DVDs have changed the ways movies are
made in dramatic ways. The DVD for many movies is strategized long
before the movie is in production. The “extras” on a DVD (outtakes,
bloopers, “making-ofs”, and so on) are now planned as carefully as the
movie itself, since they are a major factor in influencing sales.

What
definitely doesn't sell in DVDs is, predictably, foreign films and
small independent films. Such films don't do very well at the box
office in any case, but the DVD results are even worse, compared to
that of even the lamest action film or family tale. On the other hand,
Christian-themed DVDs sell very well in Wal-Marts and Targets, so the
big studios are starting to move into that lucrative area, even though
the traditional box-office results at the Cineplex are not as
spectacular.

After talking widely with key figures in the
industry, Gerner leaves the impression that DVDS are leading to further
concentration of an already incestuous industry. The DVD frenzy
emphasizes some the biggest tendencies in Hollywood: the addiction to blockbusters,
special effects for their own sake, bankable stars, and sequels, and
you can add the influence of the oligopoly retailers to the mix. The
sprig of hope that he does hold out is that there are some indications
that on the fringes smaller films and foreign titles are available over
the Internet, and that the ability to have smaller showings of films
with digital projection is growing.

On the whole,
however, the DVD is making the movie industry more than ever into the
beneficiary and slave of the same market forces as face Coca Cola and Colgate.
The movie oligopoly now has to, like those companies, deal with the
retailing oligopsony. Small players are at a big disadvantage.
[Oligopoly Watch]

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