First acknowledgement of declining DVD market

Image Entertainment took a steep writedown for its last quarter in the first major acknowledgement of the declining value of DVD libraries.

The indie producer and distributor posted a $10.4 million charge for advance royalty and distribution fees after analyzing the worth of its library following the first major decline in DVD sales last year.

Prexy David Borshell said the company decided to make the move now as part of general housekeeping following his elevation to the top post in the company AprilĀ 1.

The company has also settled its lawsuit with David Bergstein’s BTP Acquisition Group stemming from the failed merger between the two entities and will continue to work with BTP on an interim, title-by-title basis.

Borshell said it was only prudent for the company to write down its royalty payments sooner rather than later, given the declining sales of catalog DVD sales and small size of the digital download biz at this point.

“I don’t believe, although digital is growing, we can hang our hat on digital over the next few years,” Borshell said, noting the company paid some of these royalties seven or eight years ago, when DVD was still going strong. “We have to be realistic.”

Indeed, digital distribution revenue grew 30% in the company’s last quarter to $535,000 but in no way compensated for other declines; net revenue dipped 14% to $26 million. The writedown contributed mightily to a $14.7 million loss for the period, a significant deepening from the $3.05 million loss in the year-ago period. Costs associated with the BTP litigation and management changes at the end of the period contributed to the loss.

Net loss for the company’s fiscal year ballooned to $23.05 million with the charge, nearly double the $12.6 million posted the previous fiscal year. Revenue for the year declined slightly to $95.8 million from $99.8 million.

Image, which specializes in quirky fare, has gone through a rough couple years, first fighting off a hostile takeover bid by Lionsgate, then entering into the doomed alliance with BTP. However, Borshell maintains that the worst is now over, with the writedown and BTP battle behind it.

“The company went through a difficult time,” Borshell said. “But we are looking forward, and we expect good things.”

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