This article was updated on Jan. 2, 2006.
For the first time in more than a quarter of a century, consumer spending on homevideo declined this year.
Preliminary projections for overall spending on DVDs and videocassettes in the U.S. for the 52 weeks ending Sunday indicate a drop of less than 1% from the $24.1 billion last year, according to Daily Variety
sister publication DVD Exclusive.
Among the factors for the overall decline to $24 billion:
- The continued collapse of VHS — down roughly 60% this year to about $1.5 billion, or just 6% of the overall homevideo market.
- A 4% decline in the overall $7.7 billion rental market, which has been sliding since its peak of $8.4 billion in 2001.
- Rapidly falling DVD retail prices. Unit sales are up but prices are as low as $1 per DVD.
- The continued growth of TV DVDs whose many hours of content keep consumers satisfied longer between purchases.
- Top titles not reaching the same heights. Only one title topped $230 million in 2005; last year, there were three, two of which exceeded $300 million.
Despite the overall decline in revenue, spending on all DVDs was up nearly 10% to more than $22 billion. Although the 10% growth rate in 2005 is only about one-third of the more than 28% gain in DVD revs in 2004, a majority of studios enjoyed notable homevid revenue increases this year.
Final results including the Christmas and New Year’s weekends will not be tallied until mid-January, but there were no major new releases during the period that would exceed or even match the performance of holiday releases in 2004.
Top execs from several studios had, until the last couple weeks, fiercely and publicly defended their optimistic projections of a huge fourth quarter turnaround for the industry.
But harsh reality began to set in as the summer’s top theatrical grossers, such as “Charlie and the Chocolate Factory” ($207 million), underperformed on DVD, and none of the biggest box office performers, including “Star Wars: Episode III — Revenge of the Sith” ($380 million) and “War of the Worlds” ($234 million), have generated more than 50%-60% of their theatrical gross on DVD so far.
In the past, consumer spending on DVDs of the top summer theatrical hits typically reached 65%-85% of B.O. grosses in the first few weeks of release. Almost all execs reluctantly now concede that the fourth quarter will neither save the year nor even exceed spending during the same period in 2004.
Warner has strengthened its homevid market share dominance to about 21% with its powerhouse catalog and consistent string of new releases, led in the fourth quarter by the surprising opening week and legs of “Batman Begins,” which will generate about 90% of its $205 million box office gross on DVD; “The Polar Express,” which will soon match its $165 million box office take on DVD; and the studio’s even more surprising February release from sister New Line, “The Notebook,” which has more than doubled its $81 million B.O. gross on DVD.
Despite Disney’s projected decline of at least 6% due primarily to a weak slate of theatrical films capped by a vacuum of summer animated or live-action blockbusters to distribute on DVD this holiday season, the Mouse House remains in a fairly strong but distant second place finish with about 16%. That performance rests primarily on the strength of two releases in the first half of the year that held up as the industry’s two top performers for all of 2005: “The Incredibles,” at a whopping $355 million, generated nearly $95 million (35%) more in homevideo spending than its box office gross; and “National Treasure,” the top rental title of the year, with about $75 million of its total of approximately $230 million, about 50% more than it made in theaters.
Although Paramount and Lionsgate each enjoyed the biggest percentage gains in revenue this year and Sony saw a slight increase to approximately 13% with the addition of MGM for the second half of the year, the real market share horse race is for third place. Fox, which was consistently strong from wire to wire in 2005, and Universal, which also suffered from a dearth of theatrical hits and is about to lose 5% of its market share as DreamWorks moves over to Paramount, are in a virtual dead heat near 14%.
Fox was strongest in 2005 in the sales market, led by “Revenge of the Sith,” one of six homevideo titles to generate more than $200 million this year, as well as carryover sales of last year’s “Star Wars Trilogy,” overachievers like “Napoleon Dynamite” early in the year, a steady stream of TV product all year long led by “The Simpsons” and an original DVD movie version of “The Family Guy,” and a string of theatrical hits late in the year from “Mr. & Mrs. Smith” and “Fantastic Four” to the animated “Robots.”
U started out strong with three titles in the first four months that wound up among the top 10 of the year — “Meet the Fockers,” “Ray” and DreamWorks’ “Shark Tale” — and then suffered a weak middle of the year before finishing strong with DreamWorks’ top five finisher “Madagascar,” mid-December release “The 40-Year-Old Virgin” (nearly 5 million copies sold in the first two weeks) and more than 1 million copies sold of this week’s straight-to-DVD movie “American Pie: Band Camp.”
Without a “Spider-Man” movie, Sony ran its June release, “Hitch,” to the top 10 of the year with DVD revenue that matched its theatrical gross, and a variety of programming including subsequent seasons of “Seinfeld” and original DVD movies in genres ranging from action and thrillers to the Christian pic “Left Behind 3.”