POST OF THE DAY
Marvel Enterprises
"...the movie business is alive and doing great in 2009."

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By DCWD40
March 5, 2009

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Does anyone have any opinion on the famous Marvel chart (i.e., the one that extrapolates economic value from domestic box-office results) in regard to the fact that DVD sales might be weakening? I was wondering if the chart can still be relied upon now that this extraordinary recession is upon us. Thanks...

Great question.

First, though, there is one problem that "recession" doesn't cover. Ticket sales so far in 2009 are up 15.5% and box office receipts are up 17.3%. So far, the consumer is increasing their theater spending.

Now that movie tickets are a hot item, it will be interesting to see if DVD sales reverse direction and start to sell strongly again. It was Dark Knight that saved the box office last year (it ended down [for all of 2008] by 0.5%) and it was Dark Knight's massive DVD sales that saved Time Warner from having a disaster in DVD sales.

Still, many industry analysts say that the relative maturation of the DVD market, compared to other forms of packaged media such as video games, also is a major factor. U.S. DVD spending last year fell 5.7% from 2007, to $21.7 billion, despite Blu-ray sales tripling to about $750 million, according to data compiled by Video Business and Rentrak.

With HD DVD dead and Blu-ray the winner, Blu-ray could have a big year in 2009. Sony reduced prices by $50 a player today and players are now advertised regularly with a price tag under $200. The higher price for Blu-ray movies could kick the DVD revenue line up without moving the units sold line at all.

It also looks like Time Warner got snake bit and is thinking that the winter is the wrong time to release DVDs.

Meanwhile, with Warner Bros. slated to release about 60% fewer new DVDs this quarter compared to a year ago, the division's first-quarter DVD sales should drop "significantly," Time Warner Inc. chief financial officer John Martin said on this week's call.

Big drops in the new titles of DVDs for sale from such a big studio is going to skew sales in Q1 (and look pretty silly if the box office does great and other studios do well with DVD sales).

But, the fly in the ointment for DVDs is probably digital distribution of films. I think the Marvel slide may need to be updated because of the drop in DVD sales may be tied to a big increase in digital distribution. Why deal with the disc when all you have to do is download the movie when you want it while you are on vacation?

According to Media Control GfK International, worldwide packaged media sales managed to creep up six percent in 2008. Interestingly, it seems that video games were doing the bulk of the driving, as for the first time in recorded history, sales of games exceeded sales of DVD and Blu-ray Discs. Back in 2007, games accounted for 47 percent of the equation, while it scooted up to 53 percent in 2008; analysts are expecting that figure to rise further and hit 57 percent in 2009, though much of this shift has to do with the digital distribution of content and not the disinterest in movies overall. Remember, we're talking about packaged media here.

(bolding add by me)

So, what does this all mean for Marvel? First, the movie business is alive and doing great in 2009. The theater owners with the big debt loads that I was so worried about are probably going to enter the summer season in better financial shape than they have in years. Marvel needs lots of screens available and it looks like no bankruptcy judges will mess with the theaters through this summer.

Marvel does need to update its slide to show how digital distribution impacts overall sales and profits. It is unclear how profitable this business can be and if the loss of a DVD sale is not a big deal to profit if it is replaced with a digital distribution sale. I would say that digital distribution isn't as profitable as DVDs because of the hits the studios are taking financially but that might not be true because digital sales may follow a different revenue cycle (or a start-up contract cycle) and the revenue is just being delayed.

Bottom line is that it is unclear where Marvel sits with the DVD slowdown. Since so much depends on how a movie performs at the box office and how consumers are spending at Wal-Mart (the #1 seller of DVDs) it is going to be hard for Marvel (or any studio) to put numbers to how their movies will perform over their lifetime. For now, all we have is the original chart...

W.D.