Wednesday, December 9, 2009

DVDs and why they don't make as much money anymore

Responding to a comment from Shauna, I decided to give a longer answer to her question about whether some movies make money from DVD sales after their theatrical run. It's actually a very controversial subject at the moment with producers, studios and distributors.

DVD sales have slowly been falling for the last couple of years and there have been countless studies as to why this is happening. Experts suggest that the market is simply saturated and that there is so much more entertainment out there in our computers and smart phones and gaming. There's also a strong indication that doesn't surprise me and most likely most of you.

There's not a lot of good movies out there.

That's one of the reasons.

In general, and this number is debatable, the studio who made the movie gets about 40% of theatrical revenues, 30% for video including DVDs and 30% for pay TV and on-line pay-to-view and anything else.

To get an idea of money spent, consider that the average American studio picture costs $50 million. And that's romantic comedies and dramas. When you're talking superheroes and CGI effects, up that to $100 million plus. Word is that Jim Cameron's AVATAR cost upwards of $300 million, undoubtedly the highest budget ever for a movie since TITANIC, interestingly also made by that same Canadian writer/director.

Add to that advertising costs upwards of $30 million for the average studio movie which may have cost about the same. Now you have to earn back $70 million for a $40 million movie. And don't forget that the studio gets only 40% of earnings, I can't even imagine what Avatar's ad budget is going to be since they started a few weeks ago and it opens December 17.

Before 2005 DVD sales accounted easily for half a movie's cost. But today the economy is depressed and the video rental options have really changed everything. And I'm not talking Blockbuster or Hollywood Video. They are dinosaurs soon to be extinct.

I joined Netflix several years ago and never looked back. Netflix is a mail DVD rental house (actually several warehouses through-out the U.S.) whereby you pay a monthly fee anywhere from $9.99 up to $24.99. For $15 I get 3 movies that come by mail within a day or two. I watch the first one, return it in a prepaid envelope, watch the second one, return it and by the time I watch the third one, I get a new one from my queue on their website. I usually have chosen 20 or so DVDs so once one is returned, they simply send me the next in line.

It averages around 96 cents for each movie. 

Compared with $4 at Blockbuster.  Hello? 

Then there's the Redbox.  About the size of a standard refrigerator. And a true David ready to fight Goliath. These vending machines sit in supermarkets near the doors and rent movies for $1. You'd think that would make studios happy.

Well, they're attempting to sue and or block Redbox.

Because Redbox doesn't want to wait for 6 months when the movie has finished it's theater run and then goes for sale first. They want it within 30 days of the release of the movie. They would like to have it after the first week of a theatrical run. And studios are running scared, releasing a movie to DVD while the theatrical version is still in theaters could spell disaster for studios.

Redbox and Netflix are killing the big guys like Best Buy whose DVD shelves are getting smaller every week.

And then there's Blu-ray. I never liked the idea of it, as the quality difference is almost non-existent to the average viewer in spite of the hype. What it has is more space and thus more features like games and other non-related material. There is a confusion between many consumers on this matter, do you buy The Godfather on regular dvd for $9.99 or do you spend $39.99 for it on Blu-ray?

Or do you rent it for $1, watch it and then slip it into the mailbox or into the Redbox at your local supermarket? 

Or do you sit and wait for the next big thing upon which blu-ray and dvds become obsolete? And we already know that, it's streaming right to your TV set from your computer and even now new TV's are being equipped with receivers to tie into your internet.

So that's where we stand.  DVDs do earn money for theatrical movies, but today it's becoming less and less as the system to deliver them continues to change.

And the only thing that'll never change is the idea.

And that's where the writer comes in. And that's me. At least until they find a way to get avatars to write screenplays.

And they'd probably work for less than scale.

1 comment:

  1. Thanks, Jim :)
    As always, I learn so much every time I read your blog.
    Enjoy your coffees and breakfasts at the Gateway. I'm sure you'll see some of my peeps there:) Please send them my best wishes!
    Merry Christmas to you and your family!
    - Shauna