A sobering reminder of the precarious nature of business models in the entertainment comes today from Bloomberg.
They report a 32% drop in DVD shipments in the 4th quarter. While the Studios multi-billion dollar gravy train is not disappearing, its form is shifting rapidly and it is less clear how the Hollywood-based companies can capture a share of the revenues being generated in other parts of the distribution chain.
For example, the rental market for DVDs remains strong as Netflix revenue surged 19% in the same 4th quarter.
But that means Netflix is doing well it does not mean the studios prosper. What’s good for Netflix is good for Netflix.
There are fears that the overall value of a film project will have to be heavily discounted now to reflect a disappearance of after market distribution.
As the article reports:
Films are valued based on projected sales over 10 to 15 years, from theatrical release through DVD sales, cable television and TV broadcasts outside the U.S., said David A. Davis, managing partner of Arpeggio Partners LLC, a Santa Monica, California-based consultant to movie studios. Studio estimates of these cash flows may prove optimistic if DVD sales continue to deteriorate, according to [Sanford Bernstein analysy Michael] Nathanson.
While the onslaught of new media has struck fear in the hearts of many in the industry, that sector will clearly loom as more and more important in the coming decade.