As if a strike and shaky economy weren’t enough, Hollywood has another reason to worry: Its sacred cash cow, homevideo, is showing serious signs of further slowdown.
Studios were hopeful that a record summer box office would translate into robust homevid sales this fall, but DVD sales of “Spider-Man 3,” “Ratatouille” and “Fantastic Four: Rise of the Silver Surfer” have fallen short of industry expectations. Only “Transformers” has been a homevid hit, but the biz is still holding out hope for eight $100 million-plus grossers that have yet to debut, including “Pirates of the Caribbean 3,” “Superbad,” “The Simpsons Movie” and “The Bourne Ultimatum.”
With consumer confidence dropping, studios have scaled back expectations and now would be happy if sales merely end flat for the year. Adding to the fears, the nation’s two biggest homevid chains are struggling to regain their footing.
Week after week, we “bite our nails,” says Warner Home Video topper Ron Sanders. “The expectation was that the big summer at the box office would translate into the biggest fourth quarter ever, but it doesn’t look like that will happen.”
The vid biz has been hovering just under $24 billion the past two years, fluctuating within the margin for error both times. These results spoke volumes about the maturation of the DVD format and studios’ need for a new flow of green.
Sanders predicts that homevid will end the year “down a point or two” from last year’s $23.6 billion haul, although he has hope of higher-than-expected sales for the next installments of “Pirates” and “Harry Potter.” Sony Home Video topper David Bishop is more bearish — he predicts a 3% to 5% drop from 2006.
Studio execs have dissected the perf of each major release to gauge how the market will treat their bows and adjust their strategies accordingly.
“It’s a mature business,” Bishop points out. “We’re not in a period of rapid growth anymore, but hopefully new growth is on the horizon.”
Sony execs have been busy managing expectations ever since “Spider-Man 3” debuted Oct. 30. Although the studio maintains that Spidey’s perf is solid for a third installment in a franchise, many rivals consider it soft given the pic’s boffo B.O. Sony sold around 5 million copies of “Spider-Man 3” its first week on shelves. Three years ago, the second Spidey sold the same amount of discs its first day, but even that pales compared to the 7 million unit first-day sales for the first “Spider-Man.”
In any event, the biggest hits today tend to sell less than they might have a few years ago. The benchmark for mega-hits has dropped from 20 million units to about half that amount. “Transformers,” for example, sold 8.3 million units its first week, rental copies included, for the best bow this year, and is expected to keep selling through the holidays.
“The days of selling 20 million units are gone,” says Simon Swart, exec VP and g.m. North America for Fox Home Entertainment. “That number has slid down to 15 million, then 12 million, then 10 million.”
Besides “Fantastic Four,” Fox is releasing hits like “Live Free or Die Hard” and “The Simpsons Movie” in the quarter, along with niche hits like “Waitress” and “Once,” and a slew of catalog titles. Swart remains bullish about the year-end outlook, sticking to earlier predictions that 2007 will end ahead. However, he concedes that conditions are challenging.
“We’re seeing the impact of some of the chaos in the general market,” Swart says. “People are worried about their houses, they’re worried about gas prices and they’re worried about the war. There’s a lot of uncertainty out there.”
The industry is still years away from its next cash cow. The battle over high-def formats has grown more entrenched, hindering wide scale adoption of either Blu-ray or HD DVD. And Internet delivery — a major part of the WGA strike — is even more Lilliputian than DVD. Analysts believe it will be years before downloads become significant, and even then might only approach 15% of the current DVD biz.
For now, holiday competish is a more pressing concern. Although homevid execs generally take a more-the-merrier approach to the holidays — believing more hits drive more traffic for everybody — this year some have begun to ask whether there will be too much of a good thing on store shelves.
To break through the clutter, studios have ramped up their TV buys in certain cases. Sanders says Warners is planning on spending 20%-30% more than usual on a couple of titles, giving them a bigger than usual marketing push at launch and following those up with chaser ads geared to last-minute shoppers.
Sony also plans to give Spidey another push — it shipped more than 11.5 million copies to stores last month and plans to keep them for the duration — and Fox will remind shoppers about “Silver Surfer,” an Oct. 2 release, over the holidays.
Although DVDs usually sell best within the first two weeks of their launch, that’s not necessarily the case during the holidays. And this year, studios are bracing for a last-minute flurry, as typical pattern when money’s tight.
“It’s going to be a late Christmas,” confides another major topper. “Honestly, I don’t know how it will end up.”