DVD disruption
Movie studio revenue sources
(in inflation-adjusted billions)
| Year |
Theater |
Video/DVD |
Pay TV |
Free TV |
Total |
| 1948 |
6.9 |
0 |
0 |
0 |
6.9 |
| 1980 |
4.4 |
0.2 |
0.38 |
3.26 |
8.31 |
| 1985 |
2.96 |
2.34 |
1.04 |
5.59 |
11.9 |
| 1990 |
4.9 |
5.87 |
1.62 |
7.42 |
19.79 |
| 1995 |
5.57 |
10.6 |
2.34 |
7.92 |
26.53 |
| 2000 |
5.87 |
11.67 |
3.12 |
10.75 |
31.41 |
| 2003 |
7.48 |
18.9 |
5.56 |
11.4 |
41.2 |
Source: MPA All Media Revenue Report as listed at http://www.edwardjayepstein.com/table2.htm
This table bears witness to the radical changes in the movie business over the past few decades. The dollars are inflation-adjusted for comparison, and they indicate a steady rise in studios income. They don't reflect, however, the steady rise in expenses that cancels out the gain in income.
There are several interesting factors. The percentage contribution of the theatrical release keeps diminishing. By 2003 it was down below 18% of revenues, and it has doubtless slipped even further. By contrast, video revenue (becoming around four-fifths DVD now), has grown to 46% of all revenues. It's not hard to see that DVDs have become the tail that wags the dog. Ad to judge by the current slump in theatrical box office, that disparity may soon get bigger and bigger.
Note also that Pay TV revenue is also booming, almost doubling in the three years between 2000 and 2003. That, aside from HBO and Showtime, includes the small amount of on-demand movie viewing available in 2003. That finally looks to be in the process of expanding fast. By contrast, TV revenues from standard broadcast and cable has leveled off.
The paradox for the studios is this: DVD is now of the greatest importance, and Pay TV is big as well. But DVD (and presumably Pay TV) revenues are based, in large part on the reputation of the film, a reputation it gains in its theatrical release. The best-selling DVDs usually track exactly the hottest movies in theatrical release six or so months earlier. So promoting like crazy to bring up the theatrical release sales figures, as we have shown, is what will draw in the revenue later on. As we have shown, theatrical releases and their outrageously expensive marketing campaigns are now big money losers for all but the biggest hits.
In the long run, this may be an impossible situation. If people stop going to the theater in favor of waiting for the DVD, then ever fewer will be around to create a buzz in the theaters. That in turn may generate fewer sales for DVDs, as there are fewer new hit movies to buy. And the harried theater chain owners are likely to have more and more trouble selling seats. All this points to a big upcoming disruption in the market.
One further problem. As revenues from movies falls off, theatre chains are scrambling to find other ways to make money. Popcorn and nachos prices already too high, so the big current tactic is a long set of TV-style commercials mixed in previews before each film showing. Unlike with TV, you can't fast forward through the ads-you are a captive audience. That's great for the a advertiser, but it's an unwelcome new intrusion for moviegoers. As the practice grows, it becoming a strong disincentive to go the theater and put up with what few people now tolerate at home.
