DVDs Are Dying, and There's Worse News Ahead for Hollywood

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Movie DVDsIt's been nice knowing you, optical disc.

DVDs -- and even their more modern Blu-ray siblings -- are gradually fading to black.

It was really just a matter of time. The VHS cassette had its fun. LaserDisc partied on the fringes. Why should the DVD be any less transitory a technology?

Movie studios have known this for some time. They've seen sales of blockbusters and box office duds alike flounder during the home-market window. They've pointed at scapegoats. "Netflix (NFLX) is the problem!" "Coinstar's (CSTR) Redbox kiosks are the enemy." "Down with online piracy and the terrible torrent sites!"

However, moves to circumvent those perceived market-share sippers have fallen flat. Many studios have brokered deals with Netflix and Redbox to delay the availability of rentals. Hollywood has gone after file-swapping websites.

The results haven't been encouraging. Nomura Securities analyst Michael Nathanson estimates that home-video revenue -- excluding licensed streaming deals -- fell from $18.3 billion in 2010 to $17 billion in 2011.

Hooray for Hollywood? Nope. Blu-ray for Hollywood? Not really. It's time for a catchier jingle.

Doomsday for Hollywood

It's been a little more than two years since Time Warner (TWX) approached Netflix with a tasty proposition. If the video service would hold off on offering new DVD releases to its growing base of subscribers for a full 28 days, Time Warner would provide it with cheaper copies of the movies. Netflix agreed. A month later, Redbox inked a similar deal.

Time Warner knew what it was doing, claiming that 75% of its DVD sales were during a new release's first four weeks on the market. Making sure that Redbox wasn't offering $1 a night rentals and that Netflix wasn't blurring the value proposition with its unlimited monthly plans was worth the discount that it would be offering the companies.

Earlier this year, Time Warner tried to get Netflix, Redbox, and now Blockbuster to agree to 56-day release windows. Would doubling the delay accomplish what the original 28-day window could not? Time Warner ultimately soured on the whole proposition, forcing rental companies to turn to third-party distributors for full-priced disc purchases.

Renters Rant

If sales are slipping, surely rentals must be going through the roof. Well, not exactly.

It's not a shocker to find Blockbuster in trouble. DISH Network (DISH) acquired the leading rental chain out of bankruptcy last year and it's still closing down underperforming locations. NCR (NCR) -- which had licensed the Blockbuster brand for its Blockbuster Express kiosks -- agreed to sell its entertainment business to Coinstar earlier this week for just $100 million.

However, even Netflix is finding it hard to keep DVD renters happy. Netflix shed more 2.76 million DVD plan subscribers in its latest quarter, even though it added plenty of streaming subscribers. Netflix now has twice as many streaming subscribers as it does those waiting for its red envelopes to arrive by mail.

Coinstar's Redbox is the lone grower here, but its outlook isn't very promising. Coinstar sees revenue climbing just 17% in 2012, even though it raised prices by 20% three months ago.

Folks aren't buying DVDs. Folks aren't renting DVDs. What's going on?

California Streaming

Digital delivery should be a godsend to Tinseltown. The ability to beam movies directly to viewers offers studios the chance to make their entire catalogs of celluloid available to customers with Web-tethered televisions and gadgetry.

Unfortunately, outside of Netflix's digital smorgasbord, some of tech's biggest companies have struggled to market piecemeal premium streams and outright downloads.

Film buffs aren't buying DVDs, Blu-rays, or digital downloads.

What's the only thing that could make things worse for Hollywood? What would happen if you stopped going to the local multiplex?

Well, that's already happening. You have to go back to 1995 to find the last time exhibitors sold as few tickets as they did in 2011. Theater owners experienced back-to-back years of declining receipts for the first time in more than two decades.

If you think DVD sales were soft in 2011, just wait until 2012 plays out when last year's flicks hit shrink-wrapped DVD cases at a retailer near you.

Even optimists have known that DVD's days as a video platform are numbered. However, they figured that higher-priced Blu-rays -- much to the delight of television and movie studios -- would take the baton and run with it.

Unfortunately, the future is throwing studios a curve. It's not just that streaming is quickly becoming the consumption outlet of choice. The same folks who once would spend hours watching theatrical content each week are fine settling for shorter YouTube clips and watching videos uploaded by their Facebook friends.

The playing field hasn't been entirely leveled, but consumers are now settling for "good enough" video to fulfill their appetite for entertainment.

Get nervous, Hollywood. It may not be just the DVD that's dying here.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of Netflix.



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23 Comments

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r.wilson00

LOLOL. This is the worst piece of "journalism" I've seen in a while. At least a few months. I know this story is a year old, but it was even ludicrous back then. This so-called writer has lots of facts wrong, and doesn't even back up his assertions with actual revenue figures. (Because he can't.)

DVD/Blu-ray isn't dead, and isn't really dying currently. The market drops of the mid-'00s have mostly stabilized. For the moment. Will DVD & Blu-ray eventually die? Possibly. But not for at least a number of years more. Blu-ray sales increased in 2012 over 2011, and the number of people buying Blu-ray players and devices for disc are HUGE. Even now.

Dear Journalist: Next time you want to write a "doom and gloom" story about Hollywood, choose a different industry. And maybe one that you've actually researched.

March 03 2013 at 6:45 AM Report abuse rate up rate down Reply
LOLOL!!

Technology is the real one to blame, it has moved so fast. Its not just the illegal downloaders or those that watch full movies on youtube. If its there for free and know how to get it, Im sure everyone would opt for that method rather than rent, go to any cinema or simply purchase. Remember when you swapped purchased music or movies with a friend, when blank cassettes were released and you would record from the radio, or when blank vhs, cds and dvds were released-the same outcry was likely heard, stating the potential loss of millions. Im sure there were losses from these new technologies initially, but I would doubt the majority that did borrow or copy etc would have purchased otherwise. Now however its a slightly different matter. The industry has not been able to keep up with the online industry, and it would seem that the industry does not know how to control its output, or adapt to the online market as it should. It wants to sell most of its material for a near identical price to its physical products. Bad move. Its obvious from recent press coverage that too many may be downloading illegally-why they should bother if they can download the same media elsewhere online for free or less, perhaps even at a higher quality. The only other thing that could be to blame is the current quality of hollywoods output, which is arguably pretty awful. Those that hate the entertainment industry in general-hollywood, overpaid singers or celebrities that could feed a small starving country with a months wage, may be smiling (or if we are talking about the major bosses of any entertainment company, possibly a minutes wage). I dont want the physical media industry to die, but I have a feeling that the online industry will eventually become the prime format once the industry learns how to adapt, with cd and blu ray perhaps becoming the second choice for fanatics only. One major disadvantage of buying online however-one bad hard drive can destroy all your paid for mp3s and movies if you dont back up onto another drive. Thats one thing to thing about. An entire collection destroyed in the blink of an eye, and alot of money lost. I await to find out what happens to the industry, and how it copes

July 07 2012 at 6:27 PM Report abuse rate up rate down Reply
bfishstix1600

grrrr!
i feel like crying...
i mean, the years just go so fast!

May 04 2012 at 1:56 AM Report abuse rate up rate down Reply
rmulcahey7

Its called bad movies,

February 10 2012 at 10:31 PM Report abuse +1 rate up rate down Reply
bill

BLU-RAY WHAT A JOKE,NOT WORTH THE EXTRA COST.

February 10 2012 at 3:54 PM Report abuse rate up rate down Reply
Aaron Buckley

Blu-Ray suffers from a fatal flaw that drives me to digital content. When I put in the disk, I have to wade through multiple minutes of previews and menus before I can watch the movie. The buttons on my remote are locked by the studios, preventing me from getting the movie to play. When I get a digital copy, I can just hit play and the movie starts.

I pay a premium for convenience in a variety of products, but the studios seem to think that I want to pay a premium for the inconvenience associated with playing a blu-ray. So, I usually don't buy or rent blu-rays.

February 10 2012 at 12:22 PM Report abuse +1 rate up rate down Reply
maa2626

tune out hollywood and unplug your idiot box. spend time with your spouse and kids. you will be a better person in the end.

February 10 2012 at 6:47 AM Report abuse rate up rate down Reply
Ryan Stoner

#DVDisDEAD. Physical media is a thing of the past. It’s no longer about owning stacks of DVDs or Blu-rays. We need solutions that allow filmmakers to sell movies for less than the cost of the DVD and include all sorts of special features that come on a blu-ray. Building a digital collection of movies should be as easy as owning a digital library of music. We are creating MoPix (getmopix.com) to be the digital video store, taking the best aspects of Netflix, iTunes, and the Criterion Collection and giving you access to a whole universe of content. The great thing about owning a video from MoPix is that we are giving you the full DVD experience, including photo galleries, video extras, and anything else that the video producer wants to bundle. Unlike a traditional DVD, that content can grow over time with no limits. It is about making it easy for you to own content and making building a digital film library satisfying.

February 10 2012 at 1:30 AM Report abuse +1 rate up rate down Reply
2 replies to Ryan Stoner's comment
Master of my fate..

Huge difference in owning library of music. I can listen to some albums and songs 25 times in a year, can you say the same thing for movies ?

February 10 2012 at 10:21 AM Report abuse +1 rate up rate down Reply
LoupGarou

Also my Internet access isn't always reliable or available. I can watch a movie or listen to music on my laptop or on a CD/ DVD.

And if the Zombie apocalypse (or other disasters) should happen....bye-bye streaming content! Only those with real material disks will have entertainment.

February 11 2012 at 12:29 PM Report abuse rate up rate down Reply
cabo79

You are going to find the same trend with cable and Dish, more people are going back to over air. The cost of a movie ticket, popcorn and a drink has gotten out of hand. You will see less and less people going out to see a movie. And the $100 a month for Dish is going bye, bye.

February 09 2012 at 3:41 PM Report abuse rate up rate down Reply
Wealth Builder

The studios should have come up with a streaming service of their own years ago instead of trying to force people to fit their old, tired mold.

February 09 2012 at 3:14 PM Report abuse -1 rate up rate down Reply