Tuesday, November 23, 2004

DVDs = disruptive technology for Hollywood

Read an interesting post on Brand Autopsy on how DVDs have totally disruptive the old "standard" business model for Hollywood.  From the post:

  • For consumers buying DVDs, 30% saw the movie in the theater, 30% saw it on cable, and 40% have never seen the film.
  • Despite being a critical purchase factor for consumers, the DVD extras (actor commentary, behind-the-scenes footage, deleted scenes, alternative endings, etc.) are only viewed by 20% of DVD buyers.
  • ‘Eventize’ is the marketing idiom du jour being used in Hollywood. Eventize … as in, “We need to eventize the hell out of this release.”
  • Studios generate around $9.00 cash flow per DVD sold. [COST BREAKDOWN: Studios incur about $6.00 in costs (from production to marketing to royalty fees) to produce one DVD and they charge retailers a wholesale price of approx. $14.95 … leaving slightly more/less than $9.00 as positive cash flow per DVD sold.]
  • Given the profitability of DVDs, an unnamed Hollywood executive referred to DVDs as being, “… the corporate A.T.M. machine.”
  • Mega retailers dominate the consumer sales of DVDs with Wal-Mart capturing 22% of all DVD sales in the US. Best Buy, Target, Costco, Sam’s Club, Circuit City, and Blockbuster combined are responsible for 42% of DVD sales.
  • With greater frequency, more films are receiving only a two-week theatrical run and then disappear only to reappear on the DVD market to exploit the ‘home-cinema’ market.
  • The emergence of the ‘home-cinema’ market is having a profound effect on how consumers experience motion pictures. Mark Rance, a DVD producer, explained this effect by saying, “What we’re used to is the 19th century theatrical experience: you go to a theater with a large group of people, you see a movie and enjoy it with a crowd. That’s being replaced now by, like, 20 people in your living room, like a book club watching a film they might not have heard of.”

Also from the post, and perhaps the most telling: ". . . DVDs now claim 63% of a film’s revenue (as generated through wholesale DVD sales to retailers) while box office receipts only account for 21% of a feature film’s revenue."

I rarely watch any of the DVD extras; if I do watch them, I only watch them once and I find many of them to be very disappointing.  It is interesting that everyone subconsciously feels the quick release cycle of DVDs -- I hear a lot more people saying, "I thought that was just in the the theater" than I have in the past.  However, I really wonder how sustainable DVDs are as a media.  Personally, I think that within the next 24-36 months (probably sooner for those of us on the left side of the chasm, but I'm talking about the general public), most people are going to be downloading their movies or simply viewing them on demand.  Steve Jobs seems to have been right in saying that people want to own their music (at least for now), but I don't think that people necessarily want to own their movies (with the possible exception of Disney DVDs that only are "released from the vault" every once and a great while).

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Anonymous said...

Nice blog ... just cruising through ... but want to comment that I think that more and more people will want to own their own movies as the better Hollywood offerings become available at lower prices.

Right now there is a lot of garbage out there to sort thru in order to get to one good film on the rack, but if you are patient, you can build a library of both new and classic films that rival anything currently being shown on TV.

Nice part about a DVD library is that you can always watch what you want when you want instead of having to rely on settling for the best of the worst currently listed on your TV guide.

If you start your collection with the older films, it is relatively inexpensive, because by the time you are ready to purchase some of todays latest releases, noiw selling for $20 they will be so old they will repose on the two for five dollar rack at WalMart.

Otherwise, as they say, "a fool and his money are soon parted."