[Mb-civic] Hope lies in Tinseltown ¹ s DVD woes

[Michael Butler]

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John Gapper: Hope lies in Tinseltown¹s DVD woes
>By John Gapper
>Published: July 6 2005 19:47 | Last updated: July 6 2005 19:47
>>

Here is the good news for Hollywood. The golden age of the DVD is coming to
an end.

That does not sound like a positive: DVD sales easily outstrip box office
receipts as the main source of revenue for film studios. But it is a
blessing in disguise. It may spur the studios into a serious effort to make
money out of internet film downloading rather than doing their best either
to ignore the phenomenon or to curb it.

This would not come a moment too soon. The danger for Hollywood is that it
will repeat the music industry¹s mistake by procrastinating so long that
internet distribution becomes dominated by piracy. While DVD revenues keep
growing, studios lack an incentive to take the tough decisions needed to
stimulate a legitimate alternative.

Luckily, the first signs of a DVD malaise have just emerged. Both Dreamworks
Animation and Pixar have suffered shortfalls in DVD sales on the children¹s
films Shrek 2 and The Incredibles. They both sold strongly initially ­ 22m
copies of Shrek 2 were bought in the last quarter of 2004 ­ but sales fell
quicker than expected after that.

There were already signs of the golden goose laying fewer eggs. The rush to
transfer as many films and programmes to DVD as possible led to the growth
in the number of titles outstripping sales growth last year. Retailers such
as Wal-Mart and Best Buy were deluged with 40,000 titles and responded by
cutting the time each one spent on shelves.

For studios that rely on DVD revenue growth continuing, that is alarming.
After all, only 60 per cent of US households had DVD players last year
compared with the 90 per cent with video cassette recorders. Tom Rothman,
co-chairman of Fox Filmed Entertainment, predicted 18 months ago that US
sales of DVDs would carry on growing until 2007.

This is starting to seem like wishful thinking, although Mr Rothman had good
reason to hope. DVDs have been an incredible windfall for the studios.
Edward Jay Epstein estimates in his book, The Big Picture, that the six
biggest studios gained DVD and video revenues of $19bn against box office
income of $7.5bn in 2003.

Nor is the box office looking that healthy. Despite Tom Cruise¹s efforts to
bring in the crowds over the July 4 weekend with a bizarre publicity tour
for War of the Worlds (if you have not been paying attention you probably do
not want to know), US box office takings were down on last year for the 19th
weekend in a row.

If the box office blues prove to be a blip and DVD revenues are merely
shared out more widely, Hollywood will return to complacency. But I suspect
there is more going on than that. One reason I say so is a recent experience
of watching a film that had been downloaded illegally with peer-to-peer
software by an otherwise law-abiding teenager whom I know.

It was not a wholly satisfactory event. The film, burned on to a DVD so I
could watch it on television, came out in black and white and had periodic
warnings against piracy (it was clearly taken from a promotional DVD). I
ended up going to a store to rent a better version in colour, a fair
reflection of the culture gap between the young and middle-aged.

My pirate was not alone: a Forrester survey found that 20 per cent of 16- to
24-year-olds in the UK had done the same thing in the previous three months.
Last week¹s ruling by the Supreme Court against Grokster will curb blatant
attempts to profit from piracy, but under-25s will keep sharing films and
music online.

Studios have made only half-hearted efforts to provide a legal alternative.
They have been afraid of making their newest and best films available online
in case it unleashes piracy or affects other sales. Legal services such as
Movielink and CinemaNow have been given only a limited selection of films,
while most hits have been kept for the lucrative DVD market.

It was ever thus. Hollywood¹s usual reaction when faced by a new form of
distribution is to take out a gun and aim at its foot. As Mr Epstein
records, studios tried to stifle television in the 1950s and only narrowly
failed to stop Sony¹s Betamax video recorder, the precursor to the DVD
player. They went on to make huge amounts of money from both devices.

The danger in ignoring this shift in technology is greater. If the studios
do not seize control of film downloading, they will have little chance of
curbing piracy. At the moment, because it takes so long to download films
and is cumbersome ­ and illegal ­ to transfer the files to DVD, the
middle-aged are unlikely to switch rapidly from visiting the cinema and
buying DVDs. But young people are less fussy and arguably less scrupulous.

Studio executives often talk airily of being neutral about the means of
distribution and how films could in future be offered initially over cable
and satellite networks and online to pay-per-view customers. In practice,
however, they are loath to relax the favourable treatment given to DVD sales
in their carefully-constructed schedule of release ³windows².

That is why the wobble in DVD sales helps: it provides an incentive to make
sacrifices to nurture a future revenue stream. If studios give online
downloading equal treatment with DVDs and offer them cheaply enough to lure
teenagers away from piracy, they have a chance. If they carry on
equivocating, they will regret it.

john.gapper at ft.com
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