DVD’s rise sends toppers toppling

Success spurs exec power struggles

This could be the year of living dangerously for Hollywood’s home entertainment divisions.

Three long-time home entertainment toppers have already ankled as conglom execs and creative types are scrutinizing these divisions with newfound interest.

Normally, so many changes hit when a business scrapes bottom. But home entertainment has just hit the top, raking in a record $20 billion in 2002, double domestic box office receipts.

Hence, the shake-ups portend some important strategic changes affecting not only the back-end but also the release patterns of theatrical films.

“There have been seismic changes in the business in general,” says Amir Malin, chairman of Artisan Entertainment. “When you look at the revenue pie, the largest slice is home entertainment, and it’s becoming a much bigger slice as we move into a DVD-dominant world.”

That’s why it’s happening now: Money matters. The fact that these divisions are now so much more crucial to a conglom’s bottom line makes them more susceptible toshakeups.

In the space of three weeks, the “father of DVD,” Warren Lieberfarb, was booted from Warner Home Video; Lieberfarb’s polar opposite, Eric Doctorow, fell off Paramount’s home entertainment mountaintop; and Patricia Wyatt was pushed out at Fox, where she ran both video and consumer products.

Timing of the changes was mostly coincidence, a function of internal politics and personalities. But together they represent a changing of the guard just as the business evolves from ancillary sideshow to major profit center.

Lieberfarb lieutenant Jim Cardwell took over at Warner, while another Warner exec, Tom Lesinski, went to Paramount, possibly presaging a shift in its VHS rental-oriented approach. At Fox, no Wyatt replacement has been named yet.

With these changes, it may be a perfect time to restructure not just home entertainment, but all of fiefdom-filled Hollywood.

Lieberfarb and others have proposed merging theatrical and home entertainment marketing and research, and collapsing release windows to better leverage a film’s theatrical ad blitz.

They say studios should better mesh theatrical, video and cable operations for any given film property, both domestically and internationally. Without such coordination, studios are leaving money on the table.

“You need a quarterback who’s looking at all the family members and making sense of it,” says one restructuring supporter. “But I think in this town, given the fatality rate at the top, no one wants to make it happen.”

Turf-conscious execs resist such proposals. And opponents say selling a movie to theater-goers is very different from selling it six months later to renters and buyers through thousands of retailers.

A DVD release doesn’t need a $2 million premiere and party to build consumer interest, they say. What it needs are such prosaic retailer- and consumer-centric expenditures as point-of-sale displays and aisle-end placement.

But there are overlapping functions. Better coordination — if not actual mergers — surely lies ahead.

Benjamin Feingold, the long-time Columbia TriStar Home Entertainment prexy, says it’s already happening, at least at his shop.

“You always have to do what’s right for the film regardless of your job and the division,” Feingold says. “You work seamlessly on it throughout the company. There is no divisional profit and loss on a film, only the result of the film from all media. It’s the way of the business and it’s been this way for a long time.”

Stuart Snyder, a home entertainment vet who just became CEO of Canuck kids producer Cinar, says the numbers are so big right now in part because consumers have really embraced two businesses, a mostly tape-based rental business and a mostly DVD-based sell-through business. That may artificially, and temporarily, inflate home entertainment’s revenues, and importance.

But consumers still want both, at least for now. That complicates the future direction of home entertainment, says Ann Daly, head of feature animation at DreamWorks.

“We’re in a moment of sweeping change that hasn’t been seen since the emergence of video sell-through in the late 1980s,” says Daly. “The industry will need some strong leadership, because some of the decisions are going to have dramatic impacts.”

Several questions, affecting billions of dollars in revenue, must be decided in the next 12 to 18 months, Daly says. They include:

  • How fast do studios walk away from VHS? Daly says DreamWorks has made big money off VHS versions of kid-friendly pics such as “Shrek.” Leave VHS too soon and that huge base of existing video customers gets left behind, too.

  • What’s the pricing future for DVDs? As the market moves from a smallish group of hard-core collectors to a price-sensitive mass audience, pricing for different kinds of discs will have to be carefully nuanced.

  • Does a rental business still exist? Blockbuster dominates what’s left, but it is trying all kinds of retail experiments in a search for a future. And mom-and-pop vid rental stores are dying faster than dodos after the Dutch arrived. Will DVDs and videos turn into the movie version of music, a business dominated by big-box retailers who deeply discount a few hits as loss leaders to drive store traffic?
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