Home Media Magazine - January 27, 2008 - (Page 40)

NEWS 2007 a Transition Year for the Industry Continued from page 1 www.homemediamagazine.com an exciting but relatively small business,” MacPherson said. “It will continue to grow, but will probably not become sizeable for another seven to 10 years.” Steve Beeks, president of Lionsgate, agrees. “We see the emergence of digital as a win-win rather than an either-or,” he said. the only positive aspect of the format war, the existence of two rival platforms has driven down hardware prices a lot faster than they would have fallen had there been just one format in the market. The other is that while Blu-ray Disc and HD DVD finished the year in a virtual deadlock, the tide shifted earlier when Warner abandoned its dual-format strategy and announced that after May it will support only Bluray. That leaves the Sony-developed format with a decided advantage. “We expect this to exponentially help Blu-ray sales in 2008,” Beeks said. “We could see $800 million to $1 billion in Blu-ray sales this year.” Sanders shares Beeks’ optimism. “In 2008, the industry will see [another] slight decline, but we’re hopeful it is the year consumers enthusiastically embrace high-definition media,” Sanders said. “In addition, we will continue to find creative, innovative ways to package and market our catalog items. We’re seeing interesting results with digital copy and consumers’ perception of the increase value it provides to packaged goods. ” Analyst Adams said recovery could take a little longer than it did in the late 1990s, when DVD, after a slow start, ignited like a rocket. “But even then, it wasn’t until 2001 that we saw huge double-digit growth rates in the business again,” he said. “And this time, we think we’re not headed back to those kind of rates, ever. But we do expect the business to be growing on solid, high single digits by 2010, 2011, as the high-def bandwagon gathers steam.” now, studio executives focused on consumer behavior and worked to stave off further declines while lighting a fire under a new format they see as the industry’s salvation. “Our industry’s biggest challenge continues to be our need to focus on the consumer and explain the benefits of high-definition media,” said Ron Sanders, president of Warner Home Video. “Unfortunately the dueling formats took the focus off the consumer.” Packaged media falls short For standard-DVD sales and rentals, 2007 “was a somewhat volatile year,” noted Sony Pictures’ Bishop. “Our business is more like the theatrical business than it was in years past; we’ve always had this undercurrent of sales coming from the catalog, but as that has moved into decline, we’ve lost that safety net, so that when box office ebbs and flows, so do we.” Fortunately, box office numbers were up in 2007, so the declines in home entertainment spending weren’t as dramatic as everyone was predicting as recently as November, when the business was tracking about 5% behind 2006. A rash of high-profile theatricals, including the latest “Harry Potter” and “Pirates of the Caribbean” movies, hit DVD in December and brought a last-minute spending lift. As a result, when the final numbers were presented by DEG: The Digital Entertainment Group in early January at the Consumer Electronics Show, the outcome was better than many had been fearing. Overall consumer spending on home entertainment declined a modest 2%, to $23.7 billion, the DEG reported. Consumers spent $16 billion buying DVDs, down from $16.6 billion in 2006, while the rental business was flat at $7.5 billion. “We started this year with the expectation that DVD sales, industrywide, would be flat, but we were slightly off,” Sanders said. Next-generation media sales, Bluray Disc and HD DVD combined, contributed just $300 million to the top line — again, not exactly what studio executive had expected. “The existence of two competing high-definition formats was a frustration,” said Lori MacPherson, GM of North America for Walt Disney Studios Home Entertainment. Equally frustrating was a 12% decline in the average “conversion rate,” or a film’s DVD sales in relation to its box office performance — a function of format maturity, MacPherson said. Analyst Tom Adams, president of Adams Media Research, has tracked both “transition years,” as he calls them, 1997 and 2007. “What happens at the consumer level at times like this is a general hesitancy to buy because of fear of obsolescence, both of the old format and of the new,” Adams said. “But things are more challenging this time because there are not only two formats of high-definition discs, but also the Internet — and consumers are think- ing, ‘Some of my movie consumption is going to the Internet; isn’t the whole world going digital, anyway?” But 2007 wasn’t all about dashed hopes and unmet expectations. The robust TV DVD category continued to hold its own, even as many popular shows concluded their “complete season” runs. Marketing ingenuity came into play in the form of pricey “complete series” sets, issued in limited quantities, that in virtually every case were a quick sellout. There were other triumphs, as well. “Even though the sellthrough business was down, consumers found a variety of products to satisfy their needs — and it wasn’t only about low prices,” said Kelley Avery, worldwide president of Paramount Home Entertainment, which thanks in large part to DreamWorks bucked the downward trend in 2007 and finished the year with 21% overall growth. Warner leads the market On the DVD market share front, Warner Home Video, together with a confederation of distributed labels that included New Line Home Entertainment and HBO Video, once again was No. 1, with an estimated 19.6% share of combined consumer purchase and rental spending, according to Home Media Magazine’s market research department. (For market share, see chart on cover.) Looking to the future What lies ahead for 2008? Assuming DVD sales remain flat, at best, or continue to decline, the great hope for the coming year is that after so many false starts, HD media sales begin to really take off, something industry leaders agree hinges on the emergence of a unified standard. “The industry experienced its first downturn this year, so the biggest challenge in 2008 for everyone is reversing this and reigniting the category for the consumer,” said Paramount’s Avery. Sony’s Bishop agrees. “I’d say we all recognize we are in a mature business, and we need to move toward the next-generation format,” he said. In that regard, there are two encouraging signs. In what might be Beyond sellthrough The rental business, too, remained remarkably resilient, perhaps because consumer DVD libraries are so full that people are once again renting what they want to watch and buying what they want to keep, as some analysts have surmised. Movie Gallery, the No. 2 rental chain that has stubbornly clung to the traditional in-store model, is a train wreck. But Blockbuster Inc. saw its fortunes rise with its embrace of the online, bymail approach pioneered by Netflix. Electronic delivery, meanwhile, remained a nonstarter. “Electronic sellthrough remains Super Bowl Ad for HD DVD Continued from page 1 She said the spot will highlight the HDA3, HD-A30 and HD-A35 players, on which Toshiba substantially cut the retail price. “It has always been our strategy to reach HDTV owners, using advertising on football games is just one vehicle,” Sally said. “We had advertised on ‘Sunday Night Football ‘all season long.” Last year, the HD DVD Promotional Group sent a tour bus to the Super Bowl with a mobile theater and sound system to showcase the HD DVD experience. Fox TV, which is televising this year’s game, reportedly charged $2.7 million per 30-second spot. The Blu-ray Disc Association (BDA) contemplated running an ad when a spot opened up at 50% the rate but decided against it when a Super Bowl-caliber ad couldn’t be completed in time, said sources familiar with the situation. Andy Parsons, SVP of industrial solutions business group for Panasonic Electronics and spokesperson for the BDA, confirmed the group will not air an ad. “I certainly admire [Toshiba’s] chutzpah,” Parsons said. “They can certainly choose to do as they please with their marketing. Running a Super Bowl ad is not likely to convince consumers that HD DVD will win the format war.” Last year, about 2 million people bought an HDTV just to watch the Super Bowl, reported Sports Illustrated. The telecast was the highest-rated TV show in the United States with more than 93 million viewers, according AC Nielsen. SONY PICTURES PROMOTES SCHLESSEL By Ruby Cardenas HD DVD Player Sales Drop Continued from page 1 to data from The NPD Group. According to raw retail data collected by NPD, consumers bought just 1,758 HD DVD players the week of Jan. 12, down from 14,558 players the week before. By contrast, consumers bought 21,770 Bluray Disc machines, up from 15,257 the previous week. NPD would not confirm or deny the actual sales figures, saying they are proprietary. (A copy of the report was provided to Home Media Magazine by a third-party source.) But analyst Stephen Baker confirmed the weekly market share shift, with the caveat that it’s too soon to tell whether this is the start of a long-term trend. “It’s always very dangerous to make P eter Schlessel has been promoted to president of worldwide affairs at Sony Pictures Entertainment. The former president of the Sony Pictures Worldwide Acquisitions Group will now report to Michael Lynton, CEO and chairman, and Amy Pascal, co-chairman. Schlessel will continue to oversee the Acquisitions Group in his new position. However, he also will be responsible for managing critical corporate-wide programs as well as pinpointing strategic opportunities for the advancement of the company. long-term assumptions based on one-week sales data,” he said. Baker said that while the Warner defection may have impacted HD DVD player sales, other factors also may have come into play, including an aggress http://www.homemediamagazine.com

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Home Media Magazine - January 27, 2008 Contents News High-Def News Electronic Delivery News TV DVD KidVid Reviews Pipeline Research Top 20 DVD Sellers Top 20 Rentals and Top 10 Charts Just Announced

Home Media Magazine - January 27, 2008

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