Analysis: Home Entertainment Studio Heads Predict Flat Sales Growth for 2007

Authored by Jay Baage on June 18, 2007 - 8:22pm.

The presidents of the six major movie studios' home entertainment divisions participated in a panel discussion at the DVD&Beyond Conference in Los Angeles on Monday. The topic was the state of the industry and their respective visions for the future. What struck me is that there was very little discussion of new growth opportunities, even though most of the studio executives on the panel recognized that their divisions were looking at flat or negative growth for 2007.

Home entertainment is a cash cow for the studios, no doubt. In the years since people began switching from VHS to DVD, the home entertainment divisions of the studios have seen double-digit annual growth and these executives still run very profitable operations. However, the growth is now gone, although what is expected to be a strong summer slate with movies such as Transformers.

Most of the home entertainment presidents on the panel confirmed that they believe the year will end on minus or flat growth.
“It all depends on the degree that hig-def takes off in the fourth quarter”, said Kelley Avery, worldwide president, home entertainment, Paramount Pictures.
“Our retail partners are much more unforgiving these days, they have a quick trigger finger on returns,” said Henry McGee, President, HBO Video.

The hope is of course that the next generation DVD-sales will provide a boost. When and if that boost comes is still unclear and the jury is out on what digital delivery will do for the industry.

There was no clear answer from the panelists on what is causing the “slow” adoption of the new generation DVD players in the home market.
“There is a lack of content on both sides and some confusion and slowed consumer adoption due to that people are holding out because they don’t want to buy the wrong format. But on the other hand prices have come down more than probably would be the case if we had just one format,” said Henry McGee.

An interesting question that was asked to the panel is what impact the Blu-ray equipped PS3 will have on the adoption of next generation of DVDs.
“I think PS3 was a factor in focusing peoples attention to the next gen DVD, but ultimately I don’t think the PS3 is going to be a major factor in terms of (next-generation) adoption,” said Kelley Avery.

What surprised me the most was that there was almost no mentioning of the impact of digital distribution on the home entertainment market, although major initiatives from Amazon, Apple, Netflix, Blockbuster and many others have been announced recently:
“It is not in any 5 or 10 year plan I have that (digital distribution) is going to take over from physical”, said Henry McGee.

So where are the growth opportunities?
“There are tremendous franchise opportunities,” said Kelley Avery.
“The high-end market is actually really, really good,” said Ron Sanders, president, Warner Home Video.
“Its hard to strategize this. It will just be about following consumers and see what they want,” he added.

After the panel I spoke briefly to Ted Sarandos, Chief Content Officer, Netflix. He was particularly surprised of the lack of discussion about the rental market.
“No one even mentioned the rental market,” he pointed out.

I wonder why?

Joakim "Jay" Baage