Strong summer movies drive DVDs to ’06 rally
LOS ANGELES (Hollywood Reporter) – Call it the year of smoke and mirrors. When 2006 began, fearful studio executives were still reeling with the first down year in DVD history. They were anxiously looking for salvation, and hoping to find it in high-definition discs, digital downloads or perhaps a combination of the two.
The next generation of software did launch in 2006, regrettably with two incompatible formats, first HD-DVD in April and then Blu-ray Disc in June. Digital downloading began as well, with all the big Hollywood studios aggressively selling their hot new movies on Movielink, CinemaNow, Apple’s iTunes and other download services. Studio executives even coined a new term, “electronic sell-through,” or EST, for the lucrative business model.
But in the end, none of these technological marvels really mattered. High-def discs still are a blip on the sales radar, and digital downloading are even less of a blip. And lo and behold, what saved the day for home entertainment was an unexpected resurgence in the DVD market, fueled by a powerful slate of summer theatricals.
“What we’re looking at is a market that is up slightly from last year, overall,” said David Bishop, president of Sony Pictures Home Entertainment. “But if you break down the components, we’re projecting DVD sales to be up 3 percent, year-over-year, and rental to be up about 12 percent. What drags the industry down to a flat or slightly up basis is that VHS sales and rentals are virtually going away.”
“The industry is up as a whole, despite a decrease in overall pricing,” added Kelley Avery, president of worldwide home entertainment at Paramount Pictures. “Contrary to popular belief, reports of the decline of DVD have been exaggerated.”
Much of the optimism floating around the studio DVD divisions stems from the exceptionally strong fourth quarter. Things got off to a good start when Fox’s “X-Men: The Last Stand” and Disney’s “The Little Mermaid Platinum Edition” generated $80 million in consumer spending in a single day. Further triumphs came as the quarter progressed, culminating this month when Disney’s “Pirates of the Caribbean: Dead Man’s Chest” sold 10.5 million DVDs its first week in stores, putting it on track to become the top-selling live-action DVD ever.
The fourth-quarter DVD sales rally was probably the biggest home entertainment story of 2006, even though it didn’t make the biggest headlines. That honor went to the launch of the two high-def disc formats and the flurry of major studio deals with digital downloading services.
On the packaged-media front, the launch of two rival, incompatible formats was, if not a disaster, a major disappointment. But the real culprit, and the reason software sales have been anemic (fewer than 10,000 units of even a really big title are typical), wasn’t so much a lack of a unified standard. It was the fact that consumer electronics manufacturers really dropped the ball, with a series of delays that really pinged adoption rates. The HD-DVD camp never got beyond two Toshiba models, including an entry-level model retailing for $499, while only at the very end of the year did Blu-ray get additional players to join the $999 Samsung model that arrived in stores in late June.
“Everyone was disappointed in the quantity (of players) that came out of the electronics companies,” said Warner Home Video president Ron Sanders. “But what is encouraging is that the attach rate of the software was amazingly high. On average, consumers bought 28 to 30 movies per set-top box, and that’s just below what it was for DVD in the same time frame.”
Digital downloading, simmering on the back burner for several years, also had its official coming out in April when five of the six major studios begin selling downloads of their movies over the Internet, through services Movielink and CinemaNow. New releases went out day-and-date with the DVDs. Holdout Disney soon joined the party, and by year’s end, the two dedicated download services were joined by a wide variety of others, including Apple’s iTunes, Amazon.com and file-swapping service BitTorrent. The only hitch was that in most cases, downloaded movies could not be burned to standard DVDs for easy transport into the living room.
In the retail world, the mass merchants continued to clobber each other over price and exclusive gifts with purchase on hot new theatrical DVD releases, while two veteran audio-video combo chains, Musicland and Tower Records and Video, bit the dust. The former was acquired by Trans World Entertainment after filing for bankruptcy, while Tower was liquidated.
So what lies ahead for 2007? For starters, studio presidents expect big things from high-def discs. The prognosis for 2007 is that one of the two rival formats will fall by the wayside, consumer electronics makers will rally and start cranking out players, the Chinese will weigh in with cheap players of their own and by the fourth quarter, high-def discs will be a viable, significant business.
“Consumers are buying more high-definition TVs than ever before,” said Craig Kornblau, president of Universal Studios Home Entertainment. And once they get hooked on high-definition entertainment through digital cable, he said, consumers are going to want, even expect, high-def content from all their media, spurring demand for high-def discs.
The digital download market, too, is expected to grow significantly, particularly with the prospect that consumers will be able to burn downloaded movies onto DVDs playable in their set-top units. CinemaNow introduced the download-to-burn option on select catalog titles during the summer, but this year the gates are expected to be thrust wide open.
Depending on how well the summer theatrical features fare at the box office, studio chiefs say 2007 could be a very good year, overall, for home entertainment.
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