Studios hope high-def, Blu-ray pick up numbers

The worst may be over, but the homevid biz is not out of the woods yet. As promising as last month’s next-gen developments were, the vidbiz must still overcome major hurdles to bounce back from its first significant decline in consumer spending ever.

Studios need high-def and digital delivery to take off soon to counteract eroding standard DVD sales. Vid execs are feeling more optimistic about their odds in the wake of Warner’s Blu-ray endorsement and the massive studio support for Apple’s iTunes rental service, but they admit that the ongoing writers strike and an underwhelming summer B.O. slate could throw a monkeywrench in their turnaround plans.

After all, boffo December disc sales couldn’t make up for earlier weakness last year, and consumer spending drooped. The actual decline wasn’t that steep — 3.1% to $22.9 billion — but it spoke volumes about studios’ need to jumpstart next-gen formats, pronto.

“We are in a mature business, and we really felt that in 2007, it was more of a struggle to hit the numbers we used to hit in the height of the marketplace,” says Sony home entertainment topper David Bishop. With the high-def format war moving closer to resolution, “we can put that behind us and move on.”

“Nobody likes to be part of a category that has a decline, but I think the worst is behind us,” says Matt Lasorsa, New Line Home Entertainment exec VP of marketing.

Sony was so heartened by Warner’s announcement the studio revised earlier projections of a 3% to 5% decline to a slight gain for the year. Other studios also revised their projections upward, and are likewise predicting a slight gain for the year.

A return to growth is by no means assured, however. Here’s a look at the year’s big issues:

  • Far and away, the biggest question mark surrounds high-def formats. Will Warner’s decision to back Blu-ray exclusively prompt consumers to enter the high-def fray as the studio — and every other Blu-ray supporter — hopes? HD DVD sales immediately slumped after Warner’s Blu-ray endorsement, but Toshiba countered by slashing prices of its HD DVD players and went ahead with a pricey 30-second ad touting HD DVD during the Super Bowl.

“It’s crystal clear content has tilted big time to Blu-ray,” says Universal home entertainment topper Craig Kornblau, an ardent HD DVD supporter from the beginning. “But it’s also clear Toshiba isn’t giving up.”

Universal and Paramount can switch sides at any point, but so far they’re showing no signs of doing so.

“We’re still waiting to see how it all shakes out,” says Warner Home Video topper Ron Sanders. “The open issue on high-def is how retail decides to respond to our announcement.”

Last year’s high-def sales were underwhelming, to say the least: According to the Digital Entertainment Group, consumers spent $300 million on high-def discs in 2007 — half as much as the $600 million dip in standard DVD sales. (According to sister publication Video Business, DVD sales dropped $520 million to $15.38 billion last year.)

  • This summer’s box office slate is the other great unknown. This lineup is less sequel dependent than last year — and that may be a good thing for the vidbiz; fresher tentpoles tended to outperform sequels relative to box office last year. “Spider-Man 3″ and “Fantastic Four” sequels fell short of previous levels, but non-sequels such as “Transformers,” “Superbad” and “Knocked Up” cleaned up.

There were exceptions — “Pirates of the Caribbean: At World’s End” and the latest “Bourne” and “Harry Potter” installments also sold well — but homevid execs are nonetheless relieved that there are fewer sequels on the way.

“There are a lot of fresh properties,” one exec pointed out.

  • The third major variable is the writers strike. The WGA strike decimated this year’s TV season, leaving homevid arms with fewer episodes to market on disc, and viewers fewer options to watch on TV.

On the other hand, notes Kornblau, viewers could increasingly turn to older catalog TV or movies on disc for their home viewing pleasure.

“We’re planning on making lemonade out of the lemons,” he says.

Sanders says the TV category “could be even stronger in ’08 because of the opportunity presented by the writers strike.”

  • Execs don’t expect digital downloads to be a major factor this year, although Apple’s iTunes rental service could invigorate the tiny digital arena. The Apple deal covers rentals under the traditional video-on-demand window only, but several majors are negotiating with Steve Jobs to join Disney in allowing permanent downloads through the service.

  • Execs are far more bullish about digital copies embedded on DVDs. This way, they pocket coin from a disc sale, then give consumers the portability they want. Fox, Warner and Sony have all experimented with this strategy; others are expected to follow suit. At this point, only Fox has worked out a deal for its digital copies to play on Apple devices.

The key, execs say, is to give consumers as many ways of watching movies as possible — legally — whether its on Internet or cable VOD, high-def disc or a portable device. Vid mavens would prefer consumers do it through high-def discs or electronic sell-through, but they’re not about to deny them other options, lest they trade movies illegally — or turn to other forms of entertainment online or through gaming consoles.

“The way I look at it, any further ways to access content legally will only expand the category,” Lasorsa says.

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