Home Media Magazine - February 9-15, 2009 - (Page 24) NEWS Disney Hurt by the Softening Disc Business Continued from page 1 www.homemediamagazine.com Dec. 27, 2008) operating income for its studio entertainment division, which includes Walt Disney Studios Home Entertainment. Disney said quarterly income for the studio segment was $187 million, compared to $514 million during the prior-year period. Revenue for the segment decreased 26% to $1.9 billion. DVD sales of Wall-E, Sleeping Beauty, Tinker Bell and The Chronicles of Narnia: Prince Caspian in 2008 failed to compare with the previous year’s stronger unit sales of Pirates of the Caribbean: At World’s End, High School Musical 2, The Jungle Book and Ratatouille. Entertainment wasn’t the only poor performer. All of Disney’s operating units, including cable, TV, consumer products and parks and resorts, reported significant declines. “Disney had a challenging quarter in what is likely to be the weakest economy in our lifetime,” Iger told analysts in a call. It was DVD, however, that appeared to give the executive the most concern. Iger said the results, which he didn’t attribute solely to the economy, would have a long-term impact on the DVD business and would have the company “examining much of what we do,” including being more selective of the type of DVDs produced and distributed. He said Disney continues to implement steps companywide to reduce costs, with each business segment adjusting to meet its revised needs. “Our goal is to openly spend less in total on films,” Iger said. “We do believe that the cost of both produc- ing, distributing and marketing the DVDs needs to be addressed.” J.P. Morgan analyst Imran Khan said 15% of Disney’s earnings before taxes and depreciation come from packaged media, a percentage he said only Time Warner and Viacom surpass at 20%. Ironically, Disney’s lagging DVD sales came on the heels of Netflix reporting a banner quarter for disc rentals, which Richard Doherty, director of The Envisioneering Group in Seaford, N.Y., said underscored the fact that more people were likely renting Disney titles than buying them. “This is particularly rough for Disney because it has always believed that you don’t want to rent Pinocchio eight times, you want to buy it,” Doherty said. Iger said he would like to reduce the number of bonus features on DVDs and improve the price-to-value relationship. He wants to include standard-DVD and digital copy with the Blu-ray Disc release and market it as a value-add to consumers. The executive said DVD sales in the fourth quarter were impacted by the “cataclysmic” events in the economy. He also said the average household was in possession of about 80 DVDs, upwards of 140 DVDs for avid consumers. “This suggests that going forward, people potentially will be more selective about what they buy,” Iger said. “Consumers increasingly have sizable DVD collections and perceive less value from each incremental purchase,” Khan wrote. When asked whether Disney would begin releasing titles via video-on- demand at the same time as DVD, a strategy spearheaded by Warner Bros., Iger said altering the release window was not a solution. Instead he advocated turning DVD releases into retail events focused on tentpole titles rather than catalog titles earmarked for the dump bin. Tinker Bell, a direct-to-video release in the fourth quarter sold more than 6 million copies worldwide, Iger said. The CEO touted Disney’s advances in digital distribution, which generated a 13% rise in operational revenue to $313 million. The segment nonetheless lost $45 million in operating income. That result, analysts said underscored the reality that DVD’s loss was not necessarily the Internet’s gain. Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles, said DVD still accounted for the bulk of home entertainment revenue for all the studios. Rob Enderle, an independent analyst who champions digital distribution, concurred. “Right now the economy is creating a drag on most everything, and DVD remains a bargain in a market that likes bargains,” he said. Doherty said consumer surveys conducted late last year indicated buying DVDs had a higher value than going out to a restaurant. He said January’s bumper revenue at the box office underscored consumers’ demand for movie entertainment and bode well for DVD later this year. “There has always been a strong tie between those people who saw the movie in the theater and want to buy it later on,” Doherty said. Time Warner Profit Falls Continued from page 1 entertainment group from losing 11% ($395 million) in fourthquarter revenue (ended Dec. 31, 2008), compared to the same quarter the previous year. The filmed-entertainment group includes Warner Bros. Home Entertainment Group. Packaged-media sales overall compared unfavorably year-over-year with sales of Harry Potter and the Order of the Phoenix, 300, Ocean’s 13 and I Am Legend. The filmed-entertainment segment reported a 7% ($18 million) rise in operating income to $271 million on $3.1 billion in revenue. The results are in stark contrast to The Walt Disney Co., which reported a 64% ($327 million) decline in studio entertainment operating income. Time Warner CFO John Martin, in a call with investors, said the reduction in DVD and theatrical releases in the quarter curtailed P&A expenses 6%. He said that with just five new DVD releases slated in the current quarter, there would be difficult DVD comparisons to the prior-year period, when the studio released 13 titles. “The fourth quarter did benefit from The Dark Knight, and obviously things would have been worse [without it],” Martin said. “We remain cautious regarding current DVD trends and we expect the industry to stay challenged as long as there is broader softness in consumer spending at retail.” Time Warner CEO Jeff Bewkes said The Dark Knight was the secondmost profitable film in history after Titanic. “The obvious thing we are going to take from that is more Dark Knight,” Bewkes joked. “We want to do that with Batman, Superman and Sherlock Holmes, perhaps. The sequels are performing as well as the originals. That didn’t use to be the case.” He denied that a reported 24% downturn in TV DVD sales in the quarter was due to the widespread availability of the titles online and/ or via the digital video recorder. “It is true home video sales were down in the quarter for us and the industry, but the ‘A’-titles and catalog have done well,” Bewkes said. “The ‘B’-titles have not done well, so that will be a bit of a challenge for everyone in the industry this year.” Time Warner said additional filmedentertainment segment charges included $30 million in bad debt reserves for potential credit losses of Warner DVDs for several retail customers that have filed for bankruptcy, including Circuit City Stores. Fiscal-2008 operating income in filmed entertainment dropped 3% ($22 million) to $823 million, based on a 2% ($284 million) decline in revenue to $11.4 billion. Puppies in Space Fox Titles Didn’t Measure Up to Year Before Continued from page 1 Revenue fell 25% to nearly $1.5 billion, from $1.9 billion during the previous year. The results mirrored a disappointing trend among major studios. The studio said quarterly DVD releases of Horton Hears a Who! and The Happening combined with the pay-per-view TV broadcast of Juno performed unfavorably compared to the prior-year releases of The Simpsons Movie, Live Free or Die Hard and Fantastic Four: Rise of the Silver Surfer, as well as the cable VOD availability of Night at the Museum and Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan. News Corp. president and COO Peter Chernin, in a call with analysts, attributed the DVD slowdown more to the recession than a general souring on packaged media. He said DVD revenue increased in the first half of 2008 and declined 11% in the second half due to escalating consumer pressure from the economy. Referencing comments made earlier in the week by Disney CEO Bob Iger about changing consumer habits toward the DVD market, Chernin said it was too soon to draw conclusions given the depths of the consumer recession. “We’ve seen some pretty rough numbers,” he said. “I think it is too early to see it as a secular decline.” The COO said he was encouraged that DVD sellthrough in January declined only 9%, which represented an improvement over the 15% decline last October. “We do clearly think it is important to keep an eye on the business,” he said. “[But] we are not changing our wheels.” He said VOD and digital revenue grew 25% and 50%, respectively, but paled in comparison to DVD. He said the studio was focused on producing quality content and maximizing revenue through multiple distribution channels, including Hulu.com. Chernin said he would not purposely shrink the release window between theatrical and DVD, especially following the record January U.S. box office. The studio is banking heavily on the theatrical and home video results of Marley & Me, Oscar-nominated Slumdog Millionaire, and three sequels: Ice Age: Dawn of the Dinosaurs, Night at the Museum: Battle of the Smithsonian and X-Men Origins: Wolverine. “We don’t want to compromise that,” he said. The results included a $22 million write-down from an unidentified bankrupt retail customer in the United Kingdom. “The economic recession is deeper than anyone ever imagined,” CEO Rupert Murdoch said. (L-R): Director Robert Vince, writer Anna McRoberts, and Disney’s North America GM Lori MacPherson and home entertainment president Bob Chapek teamed up with Space Buddies puppies after an El Capitan Theater screening in Hollywood on Jan. 31 to celebrate the film’s Feb. 3 home video debut. HOME MEDIA MAGAZINE (ISSN 1934-9882) is published weekly 52 times per year by Questex Media Group, Inc., 306 West Michigan Street, Suite 200, Duluth, MN 55802. 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Table of Contents Feed for the Digital Edition of Home Media Magazine - February 9-15, 2009 Home Media Magazine - February 9-15, 2009 Contents News Family Cine Mercado Reviews Pipeline Research Top 20 Sellers Top 20 Rentals and Top 10 Charts Just Announced Home Media Magazine - February 9-15, 2009 Home Media Magazine - February 9-15, 2009 - Home Media Magazine - February 9-15, 2009 (Page Cover1) Home Media Magazine - February 9-15, 2009 - Home Media Magazine - February 9-15, 2009 (Page Cover2) Home Media Magazine - February 9-15, 2009 - Home Media Magazine - February 9-15, 2009 (Page 1) Home Media Magazine - February 9-15, 2009 - Home Media Magazine - February 9-15, 2009 (Page 2) Home Media Magazine - February 9-15, 2009 - Home Media Magazine - February 9-15, 2009 (Page 3) Home Media Magazine - February 9-15, 2009 - Home Media Magazine - February 9-15, 2009 (Page 4) Home Media Magazine - February 9-15, 2009 - Contents (Page 5) Home Media Magazine - February 9-15, 2009 - News (Page 6) Home Media Magazine - February 9-15, 2009 - News (Page 7) Home Media Magazine - February 9-15, 2009 - News (Page 8) Home Media Magazine - February 9-15, 2009 - News (Page 9) Home Media Magazine - February 9-15, 2009 - Family (Page 10) Home Media Magazine - February 9-15, 2009 - Family (Page 11) Home Media Magazine - February 9-15, 2009 - Cine Mercado (Page 12) Home Media Magazine - February 9-15, 2009 - Cine Mercado (Page 13) Home Media Magazine - February 9-15, 2009 - Reviews (Page 14) Home Media Magazine - February 9-15, 2009 - Reviews (Page 15) Home Media Magazine - February 9-15, 2009 - Reviews (Page 16) Home Media Magazine - February 9-15, 2009 - Reviews (Page 17) Home Media Magazine - February 9-15, 2009 - Pipeline (Page 18) Home Media Magazine - February 9-15, 2009 - Pipeline (Page 19) Home Media Magazine - February 9-15, 2009 - Top 20 Sellers (Page 20) Home Media Magazine - February 9-15, 2009 - Top 20 Rentals and Top 10 Charts (Page 21) Home Media Magazine - February 9-15, 2009 - Top 20 Rentals and Top 10 Charts (Page 22) Home Media Magazine - February 9-15, 2009 - Just Announced (Page 23) Home Media Magazine - February 9-15, 2009 - Just Announced (Page 24) Home Media Magazine - February 9-15, 2009 - Just Announced (Page Cover3) Home Media Magazine - February 9-15, 2009 - Just Announced (Page Cover4)
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