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DVD sales down but not out

Blu-Ray may not supercharge biz

DVD isn’t the golden goose it once was — but overall sales are still holding fairly steady.

What scares film studios is that its flatlining won’t provide the cushion to rising costs and lower returns elsewhere.

A recent report by Adams Media Research and Screen Digest noted that total MPA film expenses grew 10% annually between 2004 to 2007 to nearly $13.2 billion (that includes private equity coin), but worldwide revenue shrank 4.6% to $34.9 billion over the same period.

Although worldwide rev is expected to grow by about 6% annually through 2011, “it is clear that studios cannot keep increasing spending at the rates they have over the past few years,” says ancillary market analyst Tom Adams.

Even the most bullish home entertainment toppers admit Blu-Ray won’t supercharge the biz the way standard DVD did.

While DVD popularized movie buying and shifted the moneymaking onus off theatrical, movies aren’t selling the way they used to on disc.

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The congloms need only look to the adult DVD biz — once regarded as one of the only sure things during tough economic times — for a glimpse of the dangers that lie ahead on the digital front.

Adult DVD sales have slumped 10%-30% this year due to a massive shift by consumers to online content, and companies aren’t making up the lost coin on porn streamed over computers. Short clips are available for free or as little as 8¢ or 10¢ a minute online, and porn producers often get only a tiny cut.

“People are scared, quite honestly,” says Steven Hirsch, co-chief exec of Vivid Entertainment, where DVD sales are down 30% this year. “The majority of adult producers don’t know what the future holds.”

“The mood is gloomier than I’ve seen it in a long time,” says longtime AVN publisher Paul Fishbein . “Adult used to be considered recession-proof, but it’s not.”

Hollywood’s DVD revenues have been declining, too. Top DVD hits used to sell more than 18 million discs, but last year’s top three sellers — “Happy Feet,” “Transformers” and “Pirates of the Caribbean: At World’s End” –topped the 13 million mark only.

“The buy rate just continues to go down on a like-to-like basis,” says Warner Home Video prexy Ron Sanders. “Year on year, we’re seeing 5% to 10% erosion.”

Already, consumers are thinking twice about adding to existing homevid collections.

“In my opinion, the biggest challenge is library size,” says Lori MacPherson, Walt Disney Studios Home Entertainment general manager for North America. “The fact that people have 70 to 80 titles on their shelves is a much bigger issue than the economy.”

While consumers are willing to buy discs that strike a chord — witness the boffo sales of “Enchanted” and “Alvin and the Chipmunks” on disc — execs in the adult biz caution that they, too, have had to reassess their industry’s ability to withstand an economic downturn.

“This is the first time the business has been affected like this,” says Wicked Pictures exec VP Joy King.

Hollywood studios do have an advantage over their porn and music-biz counterparts in that mainstream movies aren’t as easy to slice up as albums or adult films. But execs are dancing as fast as they can to find ways to grow an increasingly fragmented business.

“More fragmentation is coming,” News Corp. prexy Peter Chernin warned at a May 18 industry confab. “What you better do is build new businesses and business models faster than the old ones erode.”

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