The Slide

What has begun? The erosion of DVD profits. According to Pali Research analysts Richard Greenfield and Mark Smaldon (see this link), 2007 will be the first year in the relatively short history of the now-popular format that DVD sales are expected to drop. It's not hard to fathom why. Popular catalog titles have been used up so all that's left are new releases (some of which will sell well, others of which will not) and double/triple/quadruple dip Special/ Director's/ Anniversary/ Deluxe/ Unrated editions that often receive a lukewarm response. You can't generate additional profits when there's a lack of product, and there are only so many ways a movie can be repackaged. (The only thing that gets me to re-buy a movie is if the video or audio is remastered. It's a rarity that I buy something for new special features, although I did break down And purchase a second copy of Casablanca because I wanted Bacall on Bogart.)

So how much will the pie be reduced? By about 1%, say the analysts. At first, that doesn't sound too bad - until you consider that 1% represents about $230 MILLION. Ouch. Or, looking at it from another perspective, that's about 10 million fewer discs sold in 2007 than in 2006.

Hollywood had hoped that by now high-def DVDs would be picking up enough steam to make up for the regular DVD fall-off, but that doesn't look like it's going to happen. There are some positive developments on the horizon geared toward minimizing the impact of the format war, such as Warner's media that will encode both HD-DVD and Blu-Ray versions of one film on a single disc. There are two issues with that approach: What's it going to cost ($40 per disc?) and will anyone other than Warner Brothers agree to package their movies this way? Then there's the long-awaited combo player that is supposed to make its debut in 2007. Again, cost is an issue. In order to become a mainstream item, the price has to drop below $500 and I would be surprised if this item debuts at less than $1000. Until prices get in line with what consumers expect, high def DVDs will remain niche market items. Remember that it wasn't just portability and superior quality that catapulted DVDs into the mainstream - it was the sub-$200 (now sub-$100) players.

The impact of movie downloads is a two-edged sword. On the one hand, many experts agree that this is the wave of the future. On the other hand, the future isn't here yet and every sale of a download eliminates a DVD sale. (How many people are going to buy a DVD copy and download a copy?) At this point, movie downloaders aren't numerous because in most houses, computers and TVs are separate entities. (Mine included: I have a "computer room" and a "home theater" and they're on different floors.) This will gradually change as the idea of the computer running the home entertainment system becomes more popular. As more houses get digital TVs and have wireless capabilities, the concept should catch on. Eventually, most TVs will have access to huge hard drives (hundreds of TerraBytes) filled with high def movies that can be accessed and played in an instant. Many of those movies will have been downloaded (either purchased or rented). How far away is this? Probably 5-10 years. It won't kill the DVD (at least not instantly), but it may represent the death knell for the small niche high def DVD. Consider the DVD/VHS/laserdisc model. The surge in DVD popularity killed the niche laserdisc almost overnight. The DVD eventually vanquished VHS, but it took a lot longer. That could be what will happen with downloading ten years from now. If you decide to go the high def DVD route, be aware that it may not be a long-term solution.

My expectation is that studios are going to become more aggressive about double-dipping on hot movies. We'll probably see movie-only DVD versions of blockbusters on shelves 3-4 months after the movie's debut. Then, a year after the theatrical release, there will be a deluxe box set. This approach worked extremely well for New Line and The Lord of the Rings. It was less successful, but by no means a failure, with King Kong and The Chronicles of Narnia. Don't be surprised if a movie-only Spider-Man 3 arrives on DVD in late summer/early fall with a box set to follow next year. Packages like this rope fans in by promising them a copy of the film quickly (the quicker the better, since it stems the desire to obtain an illegal copy) then extra content later. By the time they're done spending, they will have dropped $40-$50 (including discounts) on one title.

I believe these predictions based on my experiences. Five years ago, I purchased about 200 DVDs. Last year, it was about 50 (and some of those were TV series box sets). This year, it will probably be between 30 and 40. I'm selective and the number of new DVDs that excites me is becoming less numerous. Of course, this could lead to a discussion about how an upsurge in film quality might produce additional sales, but that's another topic for another day.

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