Michael J. Wolf

Next-generation home video will expand films’ revenues

DVD sales fell 6.3% last year. With home video accounting for as much as 70 percent of the global film market, everyone in the entertainment business is worried that the tidal wave that lifted the industry is now cresting. Not unexpectedly, studios are already saying they need to cut pay for creative talent.

In the long term, the real issue is whether or not a film’s ultimate revenue will expand OR shrink with digital distribution. I believe it’s the former: new broadband distribution will create new exploitations and new revenues for current and future filmed entertainment product. Selling or renting electronically is likely to turn out to be a better business for studios with lower costs and higher splits. Cutting creative costs will only backfire as it will be primarily high-quality films and television shows which will be able to take advantage of the broadband market.

One data point that supports my view is Netflix’s early success at video streaming. At today’s Jeffries Internet Media conference, I heard Netflix’s CFO, Barry McCarthy, talk about the company’s growth — both in revenues and subscribers — which has been boosted by its Watch Instantly streaming service. He said that they just reached the 10 million-subscriber mark (a third more than at the end of 2007). As the device base expands from PCs to game consoles to internet-enabled TV sets, he believes that streaming will become their dominant business. (Netflix is already streaming to its X-Box 360 console and Xbox live members). But, at the same time, McCarthy told us that the DVD business “will be around much longer than anyone suspects.”