Straight from video

In Hollywood, direct-to-video movies, and the folks who make them, have always been second-class citizens. But it’s clear from recent media earnings reports that recent changes in the DVD market are now driving the type of movies the upper crust is making as well. Call it, direct-from-video. In Viacom’s Q4 earnings call earlier today, for instance, CEO Philippe Dauman said slumping DVD sales are weighing heavily on green-light decisions at Paramount Pictures.

The big issue in terms of profitability [in the filmed-entertainment business] was the decline in home entertainment sales, which hit the entire industry,” he said. “As we look at the green-lighting process we will take into account the shift in the landscape. We have to take into account the possibility that the decline in home entertainment revenues will continue at least for a while and when we green-light films we will take that into account.”

What that means in practical terms, Dauman made clear, is more “franchise,” or “tent pole,” movies, like Iron Man, Star Trek and Transformers, which increasingly are the only things that sell on DVD, and less of everything else.

Responding to a question from an analyst about collapsing the DVD and VOD windows, Dauman said:

In general there has been some narrowing, some shortening of windows. I think you’ll see many studios, perhaps our own, experimenting with various day-and-dates, but probably more with lower box office titles rather than with the big titles that are so dependent on—that thrive in the DVD window.

Even with the contraction in home entertainment, big tent-pole titles such as our own Iron Man continue to perform well. So you do see differentiation among the DVD titles that are put out. I think tent poles for all studios will be increasingly important in this sort of environment.

Walt Disney Co. CEO Robert Iger was less explicit in his own Q4 earnings call but his meaning was clear enough.

We have been taking a hard look at this business for awhile with the belief that as consumer choice grows, and we all know this to be true, if you look at the availability of games online as a for instance, or videos in multiple places, or multi-channel TV, you name it. That pressure on the business has only grown. And that consumers can afford, because of all that choice, to simply be more selective and potentially to buy things that they believe that they believe they are absolutely going to want to watch instead of things that might just be nice to have.
[…] Our goal is to ultimately spend less in total on films but because we are making fewer films and there is a greater percentage of those films that are what we call tent-poles, the average price for a film isn’t necessarily going down significantly. We do believe, though, that the cost of both producing the DVDs, distributing and marketing the DVDs, needs to be addressed and that’s exactly what we’re doing with an eye toward not only reducing the cost, and what I will call the investment in extras for the DVD, but also focused on improving the price to value in relationships.

For instance, we are finding that when we sell a blue-ray DVD with a standard-def [sic] file and also a downloadable file, we can actually offer a price to the consumer that is viewed by the consumer as delivering greater value, which is enabling us to drive revenue at a level that is slightly better than we might have…But definitely the cost of, basically, the system needs to come down.

Translation: We’re only going to make the kind of movies we can still sell on DVD and then try to milk the hell out of them by loading up the Blu-ray release.

In other times, retrenchment by the majors often opened some breathing space in the market for indies. In the current climate, however, rapidly declining sales of mid-list DVDs may make it harder than ever for would-be indie producers to raise financing.

I wonder if there’s anything on over at…?