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November 22, 2004

DVDs – Causing Mass Disruption in Hollywood

UPDATED [Nov. 28]: Click here to download the article mentioned below (.doc file).

In a recent NY Times Sunday Magazine article (Box Office in a Box Nov. 14, 2004), I was struck by just how much DVDs have moved from playing a supporting role in driving revenues for studio released feature films to playing the leading role. I had no idea DVDs now claim 63% of a film’s revenue (as generated through wholesale DVD sales to retailers) while box office receipts only account for 21% of a feature film’s revenue.

Other interesting takeaways from this article include:

  • For consumers buying DVDs, 30% saw the movie in the theater, 30% saw it on cable, and 40% have never seen the film.

  • Despite being a critical purchase factor for consumers, the DVD extras (actor commentary, behind-the-scenes footage, deleted scenes, alternative endings, etc.) are only viewed by 20% of DVD buyers.

  • ‘Eventize’ is the marketing idiom du jour being used in Hollywood. Eventize … as in, “We need to eventize the hell out of this release.”

  • Studios generate around $9.00 cash flow per DVD sold. [COST BREAKDOWN: Studios incur about $6.00 in costs (from production to marketing to royalty fees) to produce one DVD and they charge retailers a wholesale price of approx. $14.95 … leaving slightly more/less than $9.00 as positive cash flow per DVD sold.]

  • Given the profitability of DVDs, an unnamed Hollywood executive referred to DVDs as being, “… the corporate A.T.M. machine.”

  • Mega retailers dominate the consumer sales of DVDs with Wal-Mart capturing 22% of all DVD sales in the US. Best Buy, Target, Costco, Sam’s Club, Circuit City, and Blockbuster combined are responsible for 42% of DVD sales.

  • With greater frequency, more films are receiving only a two-week theatrical run and then disappear only to reappear on the DVD market to exploit the ‘home-cinema’ market.

  • The emergence of the ‘home-cinema’ market is having a profound effect on how consumers experience motion pictures. Mark Rance, a DVD producer, explained this effect by saying, “What we’re used to is the 19th century theatrical experience: you go to a theater with a large group of people, you see a movie and enjoy it with a crowd. That’s being replaced now by, like, 20 people in your living room, like a book club watching a film they might not have heard of.”

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    This Box Office in a Box NY Times article by Jon Gertner was fascinating. Too bad the NY Times charges for access to this now archived article.

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    Comments

    Now, what's the likely impact on this of massive P2P movie exchange? What's plan B for the movie studios?

    You call this massive disruption? wait for P2P to really hit them.

    You can get the NYT article at this link

    Oliver - thanks for the link

    There is a P2P DVD company that is really taking off called Peerflix (www.peerflix.com). For $0.99 you can trade DVDs you have for ones you want.

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