In 2011, for the first time since 1998, home video rental spending surpassed home video sales. That may sound like a trend the major studios can live with, but not so fast, says a new report.
According to a report by Morgan Stanley's Benjamin Swinburne, home video revenue is still on the decline which means the value of film operations takes a hit. This has been happening for five years, he noted. These findings also show that major film studios (TV portions excluded) have lost a great deal and thus, the production process is affected.
What it has done, said the report, has taken a bite out of the value of operations of the major film studios. It is the value in which the studios play close attention to when doing business.
The estimates are that 20th Century Fox, Warner Bros., Universal, Paramount and Disney lost an average of 52 percent in value from 2007 to 2011, noted Swinburne, in a story filed by the show business magazine, Daily Variety.Loss of value, as reported by Daily Variety
Universal's -from $8.1 billion to $1.6 billion Disney - from $10 billion to $7 billion.
Paramount - from $4.1 billion to roughly $2.6 billion
Fox - from $10.2 billion to $4.2 billion
Warner Bros. - from &7.8 billion to $3.9
But, many studios are not on aboard with this study since they do not combine TV and movie productions and thus, the results are flawed. They often point to overseas as a future revenue stream. Swinburne agrees that those revenues have helped but haven't caught up for the time lost over the years.
In any event, the key factor to this study is that home revenues have fallen and this has raised eyebrows and will get people talking. Why? People are not going to the theaters as much. They are building home theaters and finding other ways to get their movies. It has changed the way studios do business and distribute movies. Plus, the home grown versions generally do not cost as much. The lower rental fees, or even on demand, have not helped the studios.
This idea was backed up by Swinburne in a Marketwatch report, released earlier this year. He reiterated the fact that home rental has outpaced home revenues. Swinburne noted "that the trend is likely to continue" and added, "this seems likely due to the economy, convenience of kiosk and subscription channels, and an overall maturation of physical DVDs."
Fast facts from the report
- Rental has grown at 5 percent a year since 2007
- Sell-through declined by 10-12 percent
- Kiosks and subscription services made up 53 percent of total home video spending last year
- Projections is that home video operations will be 60-65 percent by 2015.
Perhaps the most telling comment from Swinburne was about profits and their margins. "Profit margins on rentals and subscriptions are not as high as the studios are accustomed to from sales. The studios' efforts to push downloads and streaming through their own distribution channels - which do offer favorable margins - won't bear fruit for a while, he said. "Higher margin digital media consumption is still years away from widespread adoption as seen in lower-than-expected [estimated] growth of 9 percent in 2011," Swinburne wrote, as The Wall Street Journal reported.
* Benjamin Swinburne is a Managing Director at Morgan Stanley Research covering the Cable, Satellite, Entertainment, Broadcasting and Advertising industries.