Power E*TRADE: Low Trade Pricing. Get 100 Free Trades--Apply Now!
Friday, November 9, 2007


Studios Rush To Cash In On DVD Boom; Swelling Demand for Disks Alters Hollywood's Arithmetic

Published: April 20, 2004

The other day the chairman of 20th Century Fox, Jim Gianopulos, said he got a call from a lawyer friend. The friend said it was an anniversary of the firm and asked where he could get 100 DVD copies of the cult Fox movie ''Office Space.'' The film made only $10 million at the box office but has become a hit on DVD. No one at Fox pretends to know why, but the film's success is another big drop in the river of DVD cash now flowing into Hollywood's coffers.

Not since the advent of the videocassette in the mid-1980's has the movie industry enjoyed such a windfall from a new product. And just as video caused a seismic shift two decades ago, the success of the DVD is altering priorities and the balance of power in the making of popular culture. And industry players, starting with the Writers Guild, are lining up to claim their share.

There's good cause. Between January and mid-March this year, Americans spent $1.78 billion at the box office. But in the same period they spent $4.8 billion -- more than $3 billion more -- to buy and rent DVD's and videocassettes..

Little wonder then that studio executives now calibrate the release dates of DVD's with the same care used for opening weekends, as seen by Miramax's strategic release of ''Kill Bill: Vol. 1'' a few days before the theatrical release of ''Kill Bill: Vol. 2.'' (The DVD made $40 million its first day out.)

Studios now spend comparable amounts of money on DVD and theatrical marketing campaigns. Disney spent an estimated $50 million marketing the ''Finding Nemo'' DVD last year, said officials at Pixar, which made the film. It was money well spent. The DVD took in $431 million domestically, about $100 million more than the domestic box office. DVD has resuscitated canceled or nearly canceled television series like ''The Family Guy'' and ''24,'' and has helped small art movies like ''Donnie Darko'' win rerelease in theaters. It is also beginning to affect the kinds of movies being made, as DVD revenues figure heavily in green-light decisions and are used as a perk to woo craft-conscious movie directors.

''There's not a sector of the entertainment industry to which DVD is not a significant, if not the dominant, contributor of revenue,'' said Scott Hettrick, editor in chief of DVD Exclusive, a trade paper, pointing to the movie and television libraries being released on DVD. Even in the ailing music industry, he noted, music DVD's are an area of growth.

''This is an unprecedented, huge influx of new money into the motion picture business,'' Dan Petrie Jr., president of the Writers Guild of America, West, said of the DVD boom. Union negotiators are demanding higher royalty payments in contract talks under way with the Alliance of Motion Picture and Television Producers, which represents the studios. Whatever deal is finally struck when the contract runs out on May 2 is expected to be followed by all the other Hollywood guilds.

While few dispute that DVD's are low-cost, high-profit items for the studios, the studios say they need every penny to survive in a time of dwindling profit margins, and with the menace of piracy looming large. The average movie now costs $64 million to make and another $39 million to market, according to the Motion Picture Association of America.

''In the last five years maybe 6 pictures out of 1,000 recouped their cost in the theatrical marketplace,'' said Nick Counter, president of the studio alliance. ''Today the hits have to make up for all the losses.''

For bigger-budget movies the DVD revenue has become critical. Nowadays, ''basically the movies are commercials for the DVD's,'' observed John Lesher, an agent for the Endeavor talent agency who represents leading directors like Walter Salles, Paul Thomas Anderson and David O. Russell. Movies with budgets over $100 million now commonly just break even at the box office.

Stacey Snider, chairwoman of Universal Studios, said she had just asked her executives to analyze more closely the breakdown of profits in terms of the DVD revenues to figure out the changing model of the industry.