DVD business stays strong

'Direct-to-video' titles contribute significant revenue

There are two big misperceptions about the DVD biz that won’t go away.

The first is that the business is falling off a cliff, even though in reality it is still a significant part of entertainment — making $22 billion a year.

The second problem is that the old “direct-to-video” label still connotes bargain-bin also-rans that, at best, contribute a few pennies to the bottom line.

In fact, the teen cheerleader pic “Bring It On” and its four sequels have brought in about $300 million in homevideo sales for Universal. Even better, U’s seven-picture “American Pie” franchise — all installments featuring the tireless Eugene Levy — has generated a total consumer homevid spend of a half-billion dollars, says the studio’s homevid production head Glenn Ross.

Those are just two examples of why studio home entertainment divisions continue to greenlight DVD originals — including animated features, original pics like “Felon” with Val Kilmer and a seemingly endless string of sequels and established titles.

While studios grapple with the transition to all-digital distribution, they’re making sure the physical pipeline stays filled with reasonably priced product with recognizable names, some of which can lead to big returns.

Upcoming straight-to-DVD titles from Warner Premiere include “Trick ‘r Treat” with Anna Paquin, and “Free Willie: Escape From Pirate’s Cove” with Beau Bridges. The niche is strong with family titles, like Disney’s puppy-themed Buddies line, which includes “Space Buddies” and the upcoming “Santa Buddies.”

“There’s an underlying base of support when you have a franchise,” says Sony acquisitions group prexy Steven Bersch. Sony original homevid product includes spinoffs of such films as “Anaconda” and “The Grudge” and originals like “Felon” and “The Take” with John Leguizamo and Rosie Perez.

“There are movies in the Universal library people want to revisit,” says Ross. “We roll them into franchises” in the home entertainment space, which is the next-best thing to a successful theatrical sequel.

“A lot of it is economics,” he adds. “Obviously the holy grail is to make a film sequel, but theatrical P&A is very expensive and sometimes it makes more financial sense to go direct to video.”

This leads to an economic model similar to that of indie outfits. “If a theatrical sequel doesn’t make sense, we can try to recapture elements of the original film within a budget that’s more like an independent film.”

Bersch says his budgets for straight-to titles range from $2 million to $8 million. “To justify anything higher they’d have to be very established franchises,” he says.

Diane Nelson, topper of Warner Premiere, the company’s direct-to-vid division, cautions against going too low.

“We made a decision not to have bottom-of-the barrel budgets,” she says. “There are people who make a nice profit from titles in the $1 million to $2 million range, but we’re not in that business. It’s hard to make a movie well at the lower end of the spectrum.”

The indie-style budgets extend to marketing. “We have to be very careful about marketing these titles,” Nelson says. “We don’t have the luxury of spending a lot, which is why we give so much consideration to brand equity, title and casting — all of which we need to do a lot of heavy lifting when they’re sitting on a shelf.”

Budgets take into account projections for TV, VOD and foreign sales. Nelson adds that “the ability to generate revenue from those areas is critical to getting these projects approved.”

In some cases the plan may even include a theatrical release, “but we don’t have a theatrical line-item when we greenlight a project,” Bersch says. “If a picture happens to work out, it will go out theatrically.”

But no one is being complacent. “Things peaked in the last year or so,” Bersch says. “It’s been relatively stable but margins are tough and the sell-through business is challenging. In a mature business you have to make smarter decisions and watch budgets.”

According to trade org Digital Entertainment Group, the ongoing recession continues to take its toll. Consumer spending on pre-recorded entertainment fell by 3.9% in the first half of the year. While sales of Blu-ray discs continue to soar, the category is still relatively small, only partly offsetting the DVD decline.

Recognizing this trend, Warner Premiere has scaled down its original ambition of releasing 12 to 15 made-for-homevid titles a year down to 10 to 12, Nelson says. “We are now focusing on fewer, bigger bets, with stronger brand equity.”

This market shrinkage is one of the factors driving execs like Nelson to look at digital delivery as the next frontier.

“Digital is a growing category,” she says, referring to distribution via broadband services like iTunes and Amazon, plus VOD and mobile.

The studio’s recent online releases include several episodes of “Terminator Salvation: The Machinima Series,” which relied on imagery from the vidgame of the same title, and “motion comics” of its “Watchmen” and Batman franchises.

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