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Hollywood, in past few months has become increasingly enthusiastic about new technologies – especially those pertaining to online video. This change of attitude is reflected in gushing statements from movie studio executives about Vudu.
It is not just Vudu – BitTorrent, Guba or add video startup name here – Hollywood studios seem to be happy to sign a deal with anyone who is willing to make the trek to Los Angeles. The question is WHY?
The answer is actually pretty simple: stalled DVD sales.
Variety reports “Homevid sales dropped 7.8% to $3.5 billion while rental was off 1% at $2.1 billion.”
You could explain that sharp decline due to a release schedule full of utterly forgettable fare, and the summer blockbusters could eventually revive the DVD sales, but don’t hold your breath.For starters, when too many hit movies are coming out on DVD, the consumers get picky. More, sometimes is just, more.
Richard Greenfield of Pali Research in a note titled, 2007 Appears Even More Ominous For Film Studios said: we are increasingly confident that 2007 will be first year that consumer spending on DVD declines domestically. He predicts that in 2007, DVD sales will be $23.4 billion, down 1% from $23.6 billion 2006.
As the DVD sales shortfall looms large, Greenfield pointed out that the next generation formats (take your pick – Blu-ray or HD-DVD) are not going to play a meaningful role in studio revenues.
So for Hollywood the interim bet is that the new download services will make up for some of that revenue short fall, and since there is no expenses they have to undertake, the digital downloads can add to their bottom line. The margins are pretty high on these digital downloads. Margins is why, Hollywood seems to be quite enthusiastic about the day-of-DVD-release availability of films on cable video on demand.
In the long term, this could be a problem for the studios. Imagine if you could rent a movie, decide you don’t like it that much, and decide to forego the DVD purchase. Now that would be an oh-shit moment!
The music industry went through a similar shift when digital downloads introduced the single-buying mindset to consumers, who started to forego CD albums. Something tells me, I won’t be making the Oceans 12 mistake again!