The decline of the DVD business, which began in 2009, has split the producers of direct-to-DVD content into haves and have-nots — and sent the major distributors to look for sweeteners for their product, including offering exclusive windows to retailers, adding bonus material and instituting loyalty programs.

Predictably, the majors are hurting the least. About a dozen large distributors continue to churn out titles like Disney’s animated “Tinker Bell,” Fox’s “Wrong Turn” franchise and Universal’s “Bring It On” video sequels, which skip the theatrical window and rake in tidy profits. The independents are having a rougher time (although they still have a sweet spot in foreign films and the horror/suspense genre).

The majors are releasing fewer direct-to-DVD titles, but the average revenue per title is relatively steady, indicating that individual releases remain good financial performers. Despite the downturn in the DVD biz, such releases have brought in a steady $4 million -$5 million apiece in recent years, according to IHS Screen Digest.

“The most lucrative direct-to-video movies are major-studio sequels to theatrical films, and most of those are franchises that generate a new film every couple of years,” said Jan Saxton, IHS Screen Digest senior analyst for filmed entertainment. “The top 10 titles consistently claim more than half the total revenue for the whole category from year to year. The sector’s revenue is volatile because it is heavily dependent on the performance of just the very top titles.”

Some productions are designed from day one to premiere on DVD (in this story DVD is used to encompass both traditional DVD and Blu-ray). For other titles — so-called “busted theatricals” — direct-to-video is a fallback when they fail to secure theatrical release.

The very top titles — typically movies designed by major studio distributors as video premieres — can still sell 2 millions units of physical DVDs, but that’s down by about half from the heyday of 2004-08.

Production budgets of movies conceived as video premieres by the majors have undergone commensurate declines. They peaked at $10 million to $15 million at the high end a few years ago and have dropped to the $5 million-$10 million range today. The studios have managed to maintain production values by shooting the titles in lower-cost facilities outside Hollywood — in places such as South Africa, Bulgaria and Michigan — and relying on film financing incentives offered by local governments.

Leaders in direct-to-video include Walt Disney with its animated “Tinker Bell” and live-action dog adventure “Buddies” properties, 20th Century Fox with the “Wrong Turn” franchise, and Universal with its “American Pie” and “Bring It On” video sequels.

Glenn Ross, executive VP and general manager of Universal 1440 Entertainment, the unit of Universal Studios Home Entertainment that generates lower-budget films distributed in all media, plucks properties from the Universal film library in what he calls “brand development.” Teen drama “Bring It On,” which began with the 2000 theatrical starring Kirsten Dunst, recently spawned a live stage national touring musical comedy after four direct-to-video sequels. “Very rarely are we looking at this as just making one-offs,” Ross said. “We are careful about the properties we pick and (make sure) we have the resources to market them properly.”

With its family brand, Disney takes an even a broader multimedia tack. For example its “Tinker Bell” direct-to-videos mesh with its huge-selling Disney Fairies consumer products property, which together “helped to drive a really healthy toy business,” says Lori MacPherson, exec VP of global product management at Walt Disney Studios.

Also financially healthy, per MacPherson, is Disney’s “Buddies” merchandise business, which launched in 1997 with the theatrical “Air Bud” and has since morphed into about a dozen “Air Bud” and “Air Buddies” DVD sequels, along with books and other ancillary merchandise — all populated by cuddly golden retriever puppies.

Some direct-to-DVD properties have pumped up their marketing muscle via exclusive deals with big retailers. 20th Century Fox’s “Marley & Me: The Puppy Years” was exclusive to Wal-Mart, and Samuel Goldwyn Films/ATO Pictures’ “Mao’s Last Dancer” launched only in Target stores.

“Sometimes a retailer gets passionate about a title and will put a lot of marketing resources behind it in terms of advertising, in-store promotion and product placement” on store shelves, says David Bixler, senior VP of acquisitions and production at 20th Century Fox Home Entertainment. After a limited-time exclusive window with a single retailer, the same title is distributed widely.

Direct-to-video focuses on selling DVD’s rather than renting them. For its part, Disney works to buttress such sales through a loyalty program and generous bonus material. Eventually Disney intends to offer interoperability of its titles across multiple platforms via the Disney Studio All Access program — a cloud-based storage system that a Disney spokesperson says will launch “in the next several months.”

Independents — with fewer cross-merchandising resources and less clout with retailers — have had less success. “Starting in 2007, independent distributors sold more foreign direct-to-video films than the studios, and this trend continued until 2011 when the studios eclipsed the indies once again,” said David Paiko, VP of home entertainment at research provider Rentrak. (The data comes from tracking DVD sales in brick-and-mortar stores, and not online sales of DVDs.)

Perhaps one of the biggest downsides for indies: Shrinking DVD sales have put negative pressure on financing, with titles now typically generating hundreds of thousands of dollars — and some as little as tens of thousands of dollars.

“The decline in the U.S. of DVD values has increased the difficulty of funding indie productions today,” says Peter Elson, of Global Cinema Group, an international sales agent and producer’s rep. “As the gross revenue becomes smaller, the advances or minimum guarantees offered by indie distributor-buyers shrinks commensurately.”

Even as it adjusts to the realities of a declining physical DVD market, direct-to-video is morphing toward a digital distribution model. Fast-growing VOD now shares the same release window and slice of consumer dollars as traditional home entertainment and provides a big chunk of revenue,but it still doesn’t make up for the money lost on DVD sales, says Breaking Glass Pictures CEO Richard Wolff.

The downside of VOD is that it tends toward lower-priced rentals. On the other hand, it can support higher profit margins because there are no costs for disc manufacturing and no returns of unsold DVDs.

“What was the direct-to-video business is now migrating entirely to VOD,” says David Molner, managing director of Screen Capital Intl., the outfit that financed “Love and Other Impossible Pursuits” with Natalie Portman, which went direct to video in the U.S. “How long it takes to fully port over is the subject of fair speculation, but industry sentiment is certainly in favor of the trend. Consumer acceptance is finally reaching meaningful levels.”

Plus, new wrinkles are emerging in the relationship between VOD and DVD. “Distributors like the idea of taking a film out first on VOD to see how it performs,” says Nolan Gallagher, CEO of Gravitas Ventures, which operates a VOD platform offering hundreds of indie films. “If it does well on Comcast and iTunes, then they have ammo for the DVD release and can say, ‘Here’s why you should take this title for your store.’ If it doesn’t do well, then they recalibrate their commitment. VOD is a great test bed.”