Tuesday, October 11, 2011

Here's why the movie industry needs new revenues

AllThingsD reports that Rich Greenfield of BTIG has quantified the straits that the movie industry has found itself in. For more than a decade, DVD sales made up an ever-increasing majority of the industry's revenues. 2008's Great Recession flipped the DVD market from growth into decline, and the increasing popularity of Netflix and Redbox moved the home video market, which had transitioned from rental to purchase, back toward majority rental.

BTIG's numbers show how far the pendulum has swung. In the first half of 2010, U.S. sales of DVDs were just over $4 billion. Including Blu-Ray and electronic media, total home video sales were $4.998 billion. In the first half of this year, U.S. DVD sales were just over $3 billion--down almost 24% in one year. Blu-Ray sales, which were once seen as the great hope of the movie industry, were $810 million, up from $773 million a year earlier. The total for all physical media was less than the total for DVD alone last year. Electronic media sales increased year-over-year, but only from $260 million in 2010 to $270 million in 2011. Rental and Video-on-Demand revenues, on the other hand, increased from $3.782 billion in 2010 to $4.195 billion in 2011. The total rental market is now bigger than home video sales, and most of the rental revenues go to companies like Redbox and Netflix, not the movie studios.

This is why the movie studios are desperately trying every tactic they can think of to increase revenues, from $60 Video-on-Demand movies to UltraViolet digital copies of movies for online streaming. It's why Sony no longer wants to pay for 3D glasses, and why both movie studios and theaters are pushing 3D movies so hard. DVD sales were the lifeblood of the industry, financing ever more expensive movies and bigger promotional campaigns. With DVD revenues shrinking, studios are having to make difficult decisions, such as Paramount's recent decisions to consolidate its home video division with two other groups and to close its New York distribution office. At some point, studios are going to have to cut back movie budgets and possibly even cut the number of films they release each year.

The DVD "cash cow" is running out of milk, and there's nothing new on the horizon to replace it.
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