Media Wonk

High-def horror story - July 18, 2007

LAS VEGAS| At the annual home video convention here this week, the Entertainment Merchants Assn., corralled a group of home entertainment “power users” to discuss their media acquisition habits. One woman who had recently purchased an HDTV set said she was interested in playing high-def movies on it and was thinking of getting a high-def disc player. When asked whether she would buy a Blu-ray Disc or HD DVD player she noted that she’d have to buy HD DVD because it was an “HD TV set” not a “Blu-ray TV.”

The comment prompted chuckles from the audience, but the real joke is on the industry, and it isn’t very funny.

According to Video Business, U.S. consumer spending on DVDs through the first half of 2007 was down 4.8% compared to the same six-month period last year.

Studio officials blamed the decline largely on a weak release slate of titles—noting that the cumulative box office gross of the films released on DVD from January to June was off 5%--and predicted a turnaround by year’s end.

But analysts at the conference saw trouble in the fundamentals.

According to Russ Krupnick of consumer research firm NPD, three of four top DVD purchase factors have declined since 2004. In surveys, consumers indicate that the desire to add a movie to a personal collection, seeing a movie in a theater and wanting to own it and being a fan of the actors all exert less influence on their behavior today than two years ago.

To Krupnick, the overall sales trend is bound to follow those indicators down unless something changes.

If consumers were simply shifting their purchases from DVDs to other formats, such as video-on-demand or Internet downloads, the trend lines might not be too damaging to the studios, so long as they could capture a comparable portion of those revenues.

According to Krupnick and Tom Adams of Adams Media Research, however, that ain’t happening.

According to Adams, for instance, paid movie downloads remain an almost un-measurably small percentage of studio revenue, on the order of one-tenth of one percent, far less than the decline in DVD sales.

Krupnick actually reports a slight downturn in paid downloads over the past 12 months.

“We don’t see a lot of momentum in digital,” he said.

Neither Adams nor NPD is forecasting robust growth in video-on-demand over the next five years.

“The studios’ main opportunity [to offset declining DVD revenue] isn’t VOD it’s high-def optical discs,” Adams said.

That’s why the woman without the Blu-ray TV set is so worrisome. She was selected for the panel, after all, because she’s a heavy consumer of home entertainment. She has a house full of kids, four TVs (including the HDTV) and three DVD players.

If she’s out looking for a Blu-ray TV set, the industry has a serious, serious consumer education problem on its hands.

The confusion reflected in her remarks are having a baleful effect on the studios’ best hope for growth over the next 3-5 years, according to the analysts.

Only 10% of consumers in NPD’s surveys say they intend to buy an high-def disc player in the next six months. And the number hasn’t changed in 9 months.

“The metrics are not getting any better,” Krupnick said.

Neither are the studios’ prospects.

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