It's clear the DVD biz has fallen since its peak in 2006, when the format generated approximately $24 billion from sales and rentals. But obits for the format may be premature: The industry is coming up with plans to keep the patient alive as long as possible.
Blu-ray so far has not turned out to the savior of DVD as once hoped, but homevid execs are testing all sorts of other strategies to bolster DVD sales, including variations on release dates, pricing, available titles and, crucially, formats.
The studios are also learning to make a key shift in their business plan. Ask Warren Lieberfarb, whom many consider to be the godfather of DVD, and he'll tell you it's pretty obvious that studios should stop concentrating on the sales numbers and look at the rentals.
The recession has caused consumers to slow down on building their DVD libraries and rent more movies, instead. While rental numbers have remained flat -- which, given the economy, is a hopeful sign -- some rental businesses are increasing dramatically.
Renting has become more convenient, with companies like Netflix and Redbox attracting customers through their DVD-by-mail or kiosk services that rent discs for $1 a day. Both saw subscriptions and usage surge over the past year. Netflix, which launched during the previous recession, signed up its 10 millionth subscriber in February. Redbox now has 13,000 kiosks parked inside supermarkets, restaurants, drugstores and convenience stores, and wants 20,000 operating by year's end.
Apple's iTunes and Amazon's Video on Demand, as well as video-on-demand through cable boxes, websites and videogame consoles from Microsoft, Sony and soon Nintendo are also seeing rentals drive their digital business.
The rental biz -- and all of the various platforms that generate such income -- will keep studio homevid divisions afloat and even growing, analysts say.
Any good news is welcome for companies like DreamWorks Animation, which generated 45% of its revenue from DVDs in 2008, and is expected to earn more than 50% of its coin from homevid this year.
And companies such as Lionsgate, which have long relied on DVD, have seen "Transporter 3" and "Punisher: War Zone" -- which underperformed in theaters -- at the top of the rental charts. (The titles also are selling briskly on DVD).
"Transporter 3" is expected to earn $60 million in revenues, or about 200% of its box office, according to Lionsgate. The studio's "Bangkok Dangerous" similarly outdid its box office by a wide margin.
There is still hope for Blu-ray, too. Two years into its launch, sales and rentals of Blu-rays have yet to break the billion-dollar barrier; the format accounted for merely 4% of homevid sales last year.
While the $750 million in Blu-ray sales last year can be considered low, the tally is still impressive considering there are only 10 million Blu-ray players in the market. Studios generated as much as 20% in revenues from the format on some titles due to their higher price point, Adams Media Research reports.
Blu-ray and other digital formats are expected to grow the homevid biz by 2011, according to Jessica Reif Cohen, an analyst for Bank of America and Merrill Lynch.
Statements like that cheer an industry desperate for good news and confused about its status.
The reports of the homevid decline are conflicting. The National Assn. of Theater Owners estimates that last year, DVD purchases fell 8.4% to $22 billion. The Digital Entertainment Group puts the loss closer to 9%. Those are conservative compared with the 40% drop that studio execs are attributing to some titles.
In a recent report that analyzes the homevid industry, Lieberfarb, the former Warner Bros. executive who now runs consultancy Warren N. Lieberfarb & Associates, says that when DVD launched, "the low-priced, higher-quality, sell-through DVD addressed all the inconveniences of VHS rental," and did away with having to deal with titles being out of stock, late charges and rewinding."
But the DVD explosion caused many in the industry to think there might be one new format that could similarly revitalize the business. In fact, execs are confused which format to back, whether it's Blu-ray or digital delivery.
Conglomerates don't want to undercut their existing DVD biz, yet they don't want to lose out on what could be a new cash cow. So they're essentially supporting all new formats.
"For digital distribution to succeed, it must offer consumers an improved solution for rental and offer high-definition content," says Lieberfarb, who was one of HD-DVD's biggest cheerleaders. He now supports a new platform, Movie Stick, that stores movies on flash memory.
Meanwhile, studios are trying to pump adrenaline into DVDs by offering twists on old marketing formulas. "Twilight," which became the best-selling DVD for 2009, (see separate story) was released on a Saturday, rather than the usual Tuesday, to provide an extra marketing push, and gave retailers exclusive versions to promote.
"We did everything starting with the fan first," Summit Home Entertainment prexy Steve Nickerson says of the "Twilight" release.
Last month, Warner Bros. launched a unique made-to-order DVD service that enables consumers to purchase from the studio's massive vault. The effort makes hundreds of classics available that hadn't yet been available on DVD.
In the first days of going live, the studio's site (WarnerArchive.com) scored thousands of orders for the DVDs, priced at $19.95, and Warners has scrambled to add more manufacturing equipment after underestimating demand. Roughly 300 movies and TV shows will be available before the end of the year.
"I have one friend who bought 40 discs and has watched them all," says George Feltenstein, senior VP of theatrical catalog marketing at Warner Bros. "We are making things available that people couldn't get before."
Yet there have been some hiccups in the efforts to bolster sales.
Fox is stripping many extras from DVDs that are rented out, looking to reap higher returns from DVDs that boast all of the bonus features sold at retailers.
Yet the studio tripped out of the gate with the strategy last week when it wound up shipping the wrong DVDs to retailers, including Amazon. Some packages meant for sell-through wound up having the basic, no-frills edition of "Slumdog Millionaire."
Fox is still expected to distribute two levels of discs for upcoming spring titles, "The Day the Earth Stood Still," "The Wrestler" and "Bride Wars."
Disney also stumbled last month when it attempted to stagger the release dates for its DVD and Blu-rays.
The plan was to give the pricier Blu-rays a two-day head start on store shelves. But the plan backfired with "Bolt," when Wal-mart, annoyed by the extra workload needed to manage two street dates, decided to sell both versions of the toon on the same day, angering rival retailers.
Disney has since scrapped its staggered-release plans for the Adam Sandler comedy "Bedtime Stories," originally due on Blu-ray April 5 and standard DVD on April 7. Both bowed on Fridays (perhaps trying to replicate the weekend release date success enjoyed by "Twilight").
"Twilight" may have proved a happy experiment for Summit, but execs there say the key strategy for everyone should now be bending over backward to appeal to consumers -- anywhere they may be.
Nickerson understands the intense pressure studios are under to get DVD sales back on track. But he insists, "You really have to start with the consumer."
Contact Marc Graser at
marc.graser@variety.com