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.
