Economy, difficult comparison drag first-quarter revenue

APRIL 27 | With the recession taking a toll on all retail spending and the Easter holiday falling in April this year, U.S. home entertainment spending fell more than 7% in the first quarter across Blu-ray Disc and DVD sales and rentals.

First-quarter revenue from consumer purchases fell 11% to $3.1 billion, according to VB research based on studio reports. Sales of Blu-ray discs rose just over 100% from first-quarter 2008, but the still relatively small category, representing about $230 million in consumer spending for the quarter, only partially offset falling standard DVD sales, which were down 15%. The performance does represent an improvement from fourth-quarter 2008, however, when DVD sales fell closer to 18%, according to studio estimates.

Rental was basically flat, with an increase of just under 1%, at $1.7 billion, when kiosk and Blu-ray rentals are included, according to Rentrak Corp. (Click for Top 20 DVD Renters and Top 20 DVD Sellers)

The Rentrak data includes an adjustment to 2008 figures, which the company just restated to reflect fewer bricks-and-mortar rental stores—big chains Blockbuster and Hollywood/Movie Gallery alone closed more than 2,000 stores between 2006 and 2008—and lower prices at kiosks and through subscription plans such as Netflix.

Studio execs mostly blamed the light foot traffic at retail and consumers’ growing tendency to spend only on necessities, as well as a later Easter than last year, for the declines in DVD sales.

“The good news is that people are still interested in content from the studios,” said David Bishop, president at Sony Pictures Home Entertainment, referring to the growth in the theatrical box office. “People are getting out of the home on the weekends, but conversely, the real teeth of this recession is at retail. Even if people go into the store environment, they are in a more discerning mode.”

Executives do believe the worst of it may be over, as consumers are now getting over the shock of the country’s major banking, foreclosure and unemployment problems exposed in late 2008. Summit Home Entertainment’s Twilight performed like a genuine hit upon its March 21 bow and should sell more than 6.7 million units on DVD/Blu-ray, according to the studio.

“With theatrical performances, people want to escape and be in a community setting, and so with our Twilight midnight parties scheduled for March 20 midnight Twilight release parties, we created a community event for them,” Summit president Steve Nickerson said. “That was a way for people to go out and celebrate the release together.”

Similarly, 20th Century Fox Home Entertainment reported that its March 31 release Marley & Me is tracking to sell 5 million to 6 million units.

“I think the fear and the alarm and the caution is still there,” said Simon Swart, Fox executive VP/general manager. “But the wholesale panic is abating a bit. Marley & Me results have been very strong, and it is over-performing in the marketplace.”

Studios also are rallying around Blu-ray. Despite its premium price, Blu-ray doubled its revenue over last year. Many retailers consider Blu-ray the fastest-growing category among all products, say studios.

“Where Blu-ray stands now versus DVD adoption, we are at least where DVD was in the same time frame or slightly ahead—in a down economy,” added Swart.

Last year at this time, a title was deemed a Blu-ray hit if it generated 8% of its sales in the high-definition format. Now, such titles as Fox’s Quantum of Solace and Lionsgate’s Punisher: War Zone are achieving 20% portion of sales on Blu-ray.

“Blu-ray sales were stronger for Pinocchio than on [last fall release] Sleeping Beauty,” said Lori MacPherson, general manager of North America for Walt Disney Studios Home Entertainment. “More families are getting involved with Blu-ray.”

Digital revenue from Web-based sell-through and rental transactions also are on the rise, say studios. Many currently count this as incremental business, rather than cannibalization of packaged media.

Lionsgate president/co-chief operator Steve Beeks projects that industry-wide Web sales and rental revenue will grow 50% in 2009 over 2008, generating just under $750 million. If counting packaged, Web-digital, plus cable/satellite video-on-demand transactions, the home entertainment business will be off 2% to 3% from 2008.

“If there is cannibalization, it’s minor,” said Beeks. “The digital business is driven by a younger customer—a new consumer. What you’re seeing is the availability and the ability to acquire and view film entertainment on so many platforms. We’ll end up with a growing home entertainment business once we get the economy turned around.”

Warner Home Video president Ron Sanders added, “People are choosing new ways to consume entertainment, but there is no indication of long-term change in consumer behavior."

Most studio executives anticipate full-year 2009 DVD/Blu-ray spending will come in below 2008 by a single-digit percentage. This spring’s unusually strong string of box-office hits, including Monsters vs. Aliens, Fast and the Furious, Taken and Paul Blart: Mall Cop, should translate to elite DVD releases when they street during the second and third quarters.

“I think you have the stars potentially aligning for a tremendous lift from the lows of where we hit through the end of 2008,” said Craig Kornblau, Universal Studios Home Entertainment president. “It’s a great slate, and we have great, great movies coming, like [the studio’s] Fast and the Furious.”

Top 20 DVD Sellers

Rank

Title (label/distributor)

Release date

1

Twilight (Summit)

March 21

2

Madagascar: Escape 2 Africa (DWA/Paramount)

Feb. 6

3

Beverly Hills Chihuahua (Disney)

March 3

4

Pineapple Express (Sony)

Jan. 6

5

High School Musical 3: Senior Year (Disney)

Feb. 17

6

Bolt (Disney)

March 24

7

Space Buddies (Disney)

Feb. 3

8

Eagle Eye (Paramount)

Dec. 28

9

Pinocchio (Disney)

March 20

10

Quantum of Solace (MGM/Fox)

March 24

11

The Dark Knight (Warner)

Dec. 16

12

Fireproof (Sony)

Jan. 27

13

Role Models (Universal)

March 10

14

Open Season 2 (Sony)

Jan. 27

15

Max Payne (Fox)

Jan. 20

16

Australia (Fox)

March 3

17

The Family That Preys (Lionsgate)

Jan. 13

18

Saw V (Lionsgate)

Jan. 20

19

Righteous Kill (Anchor Bay)

Feb. 5

20

Mamma Mia! (Universal)

Dec. 16

Source: VB research; Year-to-date through March 29

Top 20 DVD Renters

Rank

Title (label/distributor)

Release date

1

Eagle Eye (Paramount)

Dec. 27

2

Pineapple Express (Sony)

Jan. 6

3

Lakeview Terrace (Sony)

Jan. 27

4

Righteous Kill (Anchor Bay)

Jan. 6

5

My Best Friend’s Girl (Lionsgate)

Jan. 13

6

Burn After Reading (Universal)

Dec. 21

7

Body of Lies (Warner)

Feb. 17

8

Max Payne (Fox)

Jan. 20

9

Bangkok Dangerous (Lionsgate)

Jan. 6

10

Appaloosa (Warner)

Jan. 13

11

Changeling (Universal)

Feb. 17

12

Death Race (Universal)

Dec. 21

13

Madagascar: Escape 2 Africa (DWA/Paramount)

Feb. 6

14

Mirrors (Fox)

Jan. 13

15

Nights in Rodanthe (Warner)

Feb. 10

16

Babylon A.D. (Fox)

Jan. 6

17

Pride and Glory (Warner)

Jan. 27

18

Role Models (Universal)

March 10

19

Australia (Fox)

March 3

20

Wanted (Universal)

Dec. 2

Source: Rentrak and VB research; Year-to-date through March 29

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