The most influential player in the movie biz this year will not be a producer, actor or studio exec. It will be a small, shiny object in a flat box.
Since its introduction to consumers in 1997, the DVD has become the most explosive consumer electronics product launch in history.
But rather than bringing a sense of well-being to Hollywood, the boom is stirring unrest in the industry -- and undermining entrenched assumptions.Marketing and distribution strategies are quickly being revamped. Box-office gross participants are asking for a revision of decades-old rules about profit-sharing.
The abrupt firing last month of Warren Lieberfarb, widely regarded as the godfather of the DVD, spotlights the debates and power struggles set off by the spectacular ascent of DVD. The magnitude of Lieberfarb's success cast a shadow over other senior execs at the Warner studio.
As the long-term head of Warners Home Video, which spews forth some $4 billion in annual revenues for its offerings of films, TV and music fare, some felt Lieberfarb was in line to control overall marketing responsibilities for film as well as homevideo and video-on-demand.
Moreover, Lieberfarb was a key behind-the-scenes advocate of a radical change in distribution strategy that is riveting the attention of CEOs at other companies: namely, a reduction in the gap between the theatrical and DVD releases of films.
It was Lieberfarb's heretical notion that these delays have exacerbated the problem of spiraling marketing expenditures and that DVD, video and even video on demand (VOD) should be available as early as three months after the initial release of a movie.
While these theories are being keenly debated at all the studios, certain top execs have taken notice.
"There's nothing more important on my agenda than a review of these release windows," says the CEO of a rival company, who preferred to speak off the record. "Though box office was on the uptick in 2002, that does not obscure the fact that we're on a self-destruct course."
Box-office remains the engine that drives much of the business; "Spider-Man" may have reaped an astonishing $144.4 million in its DVD debut week, but that smash bow was fueled by its boffo bigscreen biz.
But Hollywood has lost a huge portion of its filmgoing audience. At the height of the studio system in the late 1920s, the average American went to the movies 40 times a year; now, it's five times annually. A small fraction of the population accounts for 80% of the box office.
New-technology mavens want to bring the rest of the population into the equation.
While many moviegoers also buy DVDs and VHS tapes, industry execs want to increase the growth of the film biz by broadening the audiences who see films only on video. Advocates of a shorter window contend that the wall-to-wall exposure could theoretically bolster its position in the marketplace and give it even greater consumer impact.
Such a scenario is made even more realistic by the "front-loading" of the B.O., whereby even successful titles burn out in a few weeks.
Similarly, VOD is threatening to erode the rental biz.
Warner Cable Systems currently have capabilities for VOD, in which viewers can call up a film on their cable system any moment they choose. Rival systems are carefully watching the Warner VOD growth rate, ready to implement their own systems.
Hollywood wants to give people a full menu of options to enjoy a title when it is hot. But the race is on. The industry needs to create new technology before hackers find a way of viewing all these things for free.
Already, the video biz has brought films to audiences who stay away from bigscreen pics. DVDs have been a windfall for certain films that fell wide of their box-office mark, from "Battlefield Earth" to "Fight Club" to "Reign of Fire."
For various reasons, recent hits are shortening film's traditional six-month window. Many pics are debuting on DVD four to five months after hitting the B.O., including "Austin Powers in Goldmember," "Barbershop," "Reign of Fire" and "Country Bears"; "Ballistic: Ecks vs. Sever" did it in three.
Several high-ranking studio execs forecast that the three-month window will become more common, especially given the quick burnout of films at moviehouses.
"Consider the massive amount of money being spent on theatrical marketing," reasons Chris McGurk, chief operating officer of MGM, which distribbed "Barbershop."
"The quicker you can get the DVD out on the street, the faster you can capture the enormous amount of awareness in the market. You know very clearly what your audience is for that movie," he adds. "It's like taking a rifle shot."
It also doesn't hurt that a "Barbershop" sequel is in the works. MGM hopes that the video success of its title will accelerate the box-office of the second installment.
New Line knows that video can ignite a franchise. Rolf Mittweg, the company's worldwide marketing and distribution prexy, notes that "Friday," "Austin Powers" and "Final Destination" all arose from humble beginnings.
"Some films that did not reach a very wide audience (on the bigscreen) do get noticed by people who then buy them on DVD," he says. "Urban pictures, for example, don't play on 6,000 screens, but when they come out on DVD they have an awareness level."
Homevid toppers now attend greenlight meetings at the studios and engage in regular conversations with production execs, offering enticing DVD projections for action pics, thrillers and sci-fi projects.
Older-skewing dramas are rented about as often as "The Fast and the Furious" fare, but in terms of DVD sales, it is no contest.
The marketplace has been transformed by DVD -- not rentals, but sales. From their inception, discs were priced to own, in contrast to videocassettes, which were priced at $80 or $90, only to be re-released with a much lower pricetag many months later.
Trade groups peg the average price for all DVDs at $20, but many new releases dip to the mid-teens -- a big savings from the price of two movie tickets, but a huge markup from the 50 cents it costs to manufacture a disc.
Drawn by this appealing price point, the bonus material on the disc and the rising quality of the home viewing experience, the average DVD consumer now buys 16 titles a year. Those buying patterns have put a dent in the once robust rental business at Blockbuster, which has watched its stock fall 50% in the past six months.
The DVD phenom has rapidly permeated the culture.
Discs are packaged with everything from CDs to magazines to cook books. When cabler American Movie Classics was trying to reinvigorate its image, it launched a show called "DVD TV."
At Warner Bros., Lieberfarb not only grasped this paradigm shift: He codified it.
In spring 1997, Lieberfarb trumpeted the arrival of the format by releasing "Twister" and a clutch of Warner Bros. library titles with the sort of fanfare previously reserved for theatrical titles.
Lieberfarb was renowned for undercutting rivals on price. Offering best picture Oscar winners for $9.99 stirred up controversy among retailers, but sales shot skyward, and the homevid market, long considered an ancillary business, began providing an increasingly large portion of the studio revenue pie.
Now high-profile DVD releases have the earmarks of a major theatrical event.
Studios lock down release dates several months in advance and dicker over opening-weekend sales figures. Their most prominent DVD titles reach the market with a flurry of hype, TV advertising, even premiere parties. Sound familiar?
Stars and producers are beginning to take note of the DVD bonanza.
Traditionally, talent hasn't participated in a large share of homevideo grosses. Guild rules since the 1980s have limited the available pool of negotiable homevideo revenues to 20%, having first hived off 80% for the studios.
But creatives are clamoring for a bigger piece of the pie, with A-listers like Tom Hanks, Tom Cruise and Steven Spielberg insisting on haggling over the full 100%.
Homevid execs are also seeking a measure of power commensurate with the enormous profits their divisions are generating.
But it may be hard to escape the stigma of a division that's long been considered an aftermarket, not a primary market.
And despite the shrinking release window, studios remain vigilant about preventing homevideo releases from cannibalizing a title's theatrical run.
Despite the shrinking release window, studios remain vigilant about preventing homevideo releases from cannibalizing a title's megaplex run.
"The economics of the movie business are not particularly good," observes Disney studio topper Dick Cook. "DVD is not the cure-all but it's helped those economics."
Cook continues, "The theatrical engagement still sets the value for your product. I don't think anyone is trying to do anything to damage that theatrical run."
(Dave McNary, Scott Hettrick and Michael Speier contributed to this report).
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