Disney CEO Bob Iger, in last week’s financial call, seemed to be dumping on discs — at least that’s the way many analysts sized it up. Wall Street analysts, always looking to promote digital delivery, took Iger’s comments as a chance to once again declare Blu-ray a dud and the age of packaged media on the wane. Los Angeles Times columnist Patrick Goldstein parroted the refrain, “The DVD market, which has quietly supplied the biggest pure profits for Hollywood in recent years, is in the doldrums, evidencing little hope of regaining its high-roller status, with Blu-ray looking more and more like a dud while many young consumers experiment with alternative ways of watching movies.”
But their comments have to be taken with a grain of salt. Wall Street doesn’t make money on stocks and businesses that are mature (such as packaged media). Investors make money on new businesses that are in the early stage of their lifecycle, with lots of upward stock price potential — like digital delivery. That’s why they are always so eager to dance on the grave of packaged media.
CNBC’s Lee Brodie this week titled his commentary “What’s Working: Digital Delivery.” He goes on to offer Neflix as an example, which reported one-fifth of its customers were watching streaming. “The trend sent profit up a surprising 45%,” declares a breathless Brodie. While streaming is indeed a plus for Netflix subscribers, Brodie neglects to mention that Neflix also is making MORE MONEY on Blu-ray subscribers by charging them $1 more. He also neglects to mention that there are 700,000 Netflix Blu-ray subs who are paying more for the privilege. Netflix doesn’t charge ANY premium for streaming. Might one also be able to say that Blu-ray is goosing earnings? So let’s examine what Iger said. “We do believe that the cost of both producing, distributing and marketing the DVDs needs to be addressed,” Iger said. He added, with large DVD collections, “people potentially will be more selective about what they buy.” He also called this “the weakest economy in our lifetime.”
Might that be the real reason people aren’t buying as much, rather than any inherent lack of disc appeal? If discs weren’t in demand, Netflix wouldn’t be making a profit because four-fifths of its customers would be gone.
Other CEOs were more kind.
Time Warner CEO Jeff Bewkes: “It is true home video sales were down in the quarter for us and the industry, but the A-titles and catalog have done well. The B-titles have not done well, so that will be a bit of a challenge for everyone in the industry this year.”
He’s got it partially right, though I think catalog is suffering on DVD. When he’s talking about catalog, he is probably looking at sales on Blu-ray and TV DVD.
Fox’s Peter Chernin noted, “I think it is too early to see it (the disc sales falloff) as a secular decline. … We think it is important to keep an eye on the business. [But] we are not changing our wheels.” Disney’s business is falling off because it, like the others, has been hit by a horrible economy. Meanwhile, it also had fewer great titles compared to the year before. Wall-E, Sleeping Beauty, Tinker Bell and The Chronicles of Narnia: Prince Caspian aren’t of the same caliber on disc as Pirates of the Caribbean: At World’s End, High School Musical 2, The Jungle Book and Ratatouille. Prince Caspian was disappointing to put it lightly (in fact, Disney won’t make the next in the series). Wall-E, though critically acclaimed, doesn’t appeal to kids as much as Ratatouille does, as evidenced by watching my own kids, 10 and 6. And, though it’s great, Sleeping Beauty is no Jungle Book.
The studios have been on the high of enormous DVD sales, and they’ll have to lower their projections a bit because of an unprecedented poor economy, but I don’t think it’s a disaster by any means — nor is it really a reflection on the inherent value of packaged media. Studio and talent salaries will have to get a haircut, and there may not be as many extras on disc, but the disc will be around for some time to come.