A winter heat wave for DVDs?

Summer hits hope to bring sales rebound

The summer boxoffice broke records, which confounded dire predictions and brought a shot of much-needed adrenalin to Hollywood. Now the big question is whether the declining DVD business can get a similar boost when those movies debut in the fourth quarter.

The disc deluge begins Sept. 25 with “Knocked Up,” the first hit of the summer, and won’t end until late December, when some movies that aren’t even in theaters yet are expected to hit shelves.

After the Judd Apatow comedy, some 15 other films that grossed more than $100 million domestically are expected in the last quarter, up from a dozen last year.

There’s a lot at stake: Studios can make up to half of their coin during the fourth quarter thanks to the annual gift-buying frenzy. And that’s a huge amount of money, when the domestic homevid biz hovers around $24 billion annually, compared to $9.49 billion last year for domestic theatrical grosses. (Around one-third of homevid coin comes from rentals.)

Cannibalization isn’t as big a concern as it is at the multiplex, because buyers tend to stock up on more than one disc at a time. For that reason, homevid execs tend to exult in heady competish rather than despair about it.

But it’s not necessarily going to be smooth sailing. The homevid biz has been in decline for most of the year, with most estimates in the 5%-10% range. (Due to various factors, it’s harder to get exact figures than it is in boxoffice reporting.)

In addition, there is the ongoing battle of formats, as well as turmoil in the biz’s two biggest rental chains. On Sept. 10, Blockbuster laid off its chief operating officer to save coin, and No. 2 chain Movie Gallery (operator of Hollywood Video) has been teetering on the edge of bankruptcy for weeks. And there’s more uncertainty over the format war than ever, now that Paramount has thrown its weight solely behind HD DVD. At this point, hi-def sales pale in comparison to those from standard DVD.

Digital downloads, forever touted as the delivery system that could kill DVDs, have yet to take off and are bringing in even smaller returns than the nascent high-def biz.

But the bigger question is whether the summer B.O. bonanza will carry over to a business that’s been dipping.

“That’s the big question,” concedes Paramount homevid topper Kelley Avery, who believes the industry will end slightly up by year-end.

“The good news is we’re coming off a record summer,” Avery says. “And we do know that hits bring people into stores.”

Sony homevideo topper David Bishop points out that in a mature business, studios’ fortunes are even more closely tied to B.O. ups and downs than in the early go-go years when library titles would fly off shelves. This year, he says, the B.O. should work in the industry’s favor.

“I’m cautiously optimistic we’ll end the year ahead,” Bishop says.

Fox Home Video general manager of North America Simon Swart is more confident, predicting “the best fourth quarter business the business has ever seen. The bottom line is, the more studio movies do better, the better it is for the industry.”

There are signs for early optimism. In the last few weeks pricey DVD box sets of TV shows have flown off shelves — Universal sold more than 650,000 copies of the first season of “Heroes” — and studio execs think that earlier installments in their franchises will get a boost when the latest installments hit disc.

“We have a fabulous slate coming off a record summer,” U homevid topper Craig Kornblau says. “We’re going to recover everything and raise it up a little bit more.”

After avoiding the last few holiday seasons for less competitive January berths, New Line is jumping back into the fray this year. The mini-major will bring out “Hairspray” on Nov. 20 — a key position two days before Thanksgiving, when “Live Free or Die Hard” and “The Santa Clause 3” will also bow — and is also expected to bring out “Rush Hour 3” sometime in December.

Sony is also squeezing “Superbad” into December, and Universal is doing the same with “The Bourne Ultimatum” and potentially “The Kingdom.”

Fox is eyeing on a pre-Christmas bow for “The Simpsons Movie” and the Mouse House has already staked out Dec. 4 for “Pirates of the Caribbean: At World’s End.”

Earlier summer hits such as “Spider-Man 3” and “Transformers,” meanwhile, will bow on disc in October, with “Shrek the Third” and “Ratatouille” both landing in November.

Of course, there is a possibility that this will be the year when cannibalization really does take a toll on certain titles. Last week, at the Goldman Sachs Communacopia confab, DreamWorks Animation topper Jeffrey Katzenberg suggested it could be an issue during the fourth quarter, adding, “we are cautitious about how these titles are going to be able to realize their full potential.”

Given how many heavyweight discs are packed into the end of the year, there might not be much left for early in the next year. But that will give execs something to blame if sales soften in early 2008.

“I’m just trying to get through the fourth quarter,” one topper confesses.

Every year studios squeeze more and more movies into the end of the year period for a simple reason: The potential payoff in holiday sales.

“The conversion rate is just too strong,” admits Matt Lasorsa, exec VP of marketing for New Line Home Entertainment.

“It’s crazy busy,” says U’s Kornblau, who sounds positively giddy over the potential riches on the way. “It’s hard not to feel excited right now.”

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