Wall Street is starting to see some rather large chinks in the armor of its favorite animation studios.
Weak DVD sales humbled
for the second time in as many months Monday. The smashup came just two short weeks after rival
suffered its own bottom-line bruising. Shares in both companies have been hit hard.
Even so, Wall Street continues to dance around the question of just why DVD sales have suddenly faltered. While all agree that the studios and their distributors must lighten up on movie-bloated retailers, it seems that no one can say just why consumers are less eager to buy movies on DVD.
Some people see pure market math at work. As more and more people buy DVDs, there are fewer die-hard consumers. "The new people on board are not as avid" buyers as the first-to-market users were, says Larry Haverty of Gabelli Asset Management. He adds that "consumer preference to buy DVDs seems to have peaked."
Asked on a call Monday, Dreamworks CEO Jeffrey Katzenberg claimed there was too little data to come to any conclusion on why DVD sales had suddenly weakened. He noted that with only two titles in the marketplace,
, Dreamworks just hasn't seen enough consumer behavior. "There's too little data over too short a period of time to make an assessment of it," he said.
Katzenberg emphasized that the shortfall was not a
issue. Instead, he intoned, "this is a market issue." Pixar chief Steve Jobs was equally mealy-mouthed about
problems last month.
There are indeed a variety of factors contributing to the DVD problem. For one, Pixar and Dreamworks only put out one or two movies a year, so any problems hit their earnings much more than at an outfit like
For another, the companies' distributors --
for Pixar and Universal for Dreamworks -- have customarily flooded the retail channel with DVDs. That practice will presumably come to an end in the wake of problems with
That said, it's hard to ignore the experience of the music industry, which saw sales plunge as Internet file-sharing emerged.Asked if issues such as piracy factored in, Katzenberg did not comment, saying that the issues surrounding DVDs were complex.
It seems that any time piracy comes up, one of the studio chiefs responds by saying that it is complex. They don't comment for fear, it seems, of being tarred by the same brush as the music industry has been. As with any theft, there is more desirability for a premium item than there is for a dud. Car thiefs, one might surmise, would rather get their hands on a Porsche than a Pinto.
With so much bad product coming out of Hollywood, it would make sense that piracy would eat into the sales of popular DVDs.
Granted, movies take a lot longer to download online, but if anyone believes that online feature film piracy is not on the rise -- or that you can't find a copy of
Revenge of the Sith
in Outer Mongolia the day of its theatrical release -- they are living in a fantasy world that even Dreamworks and Pixar couldn't conjure.
According to Eric Garland, CEO of BigChampagne, which tracks online use, the major problem is not that individuals are sharing movies like they have music from person to person -- it's that physical piracy is being driven by Internet-based distributors.
"The Internet is supercharging the distribution of pirated files from the source," says Garland. In other words, a copy of the latest hit comes out from someone who has "touched" the film, either through a screening or in postproduction. In either case, the movie is downloaded by an illegal distributor in a far-flung land and then 100,000 copies are made and put out on the street for $5 apiece. The movie hits the streets in huge numbers just as it is being released on theater screens.
A major dilemma for the studios has surfaced in terms of how to limit piracy. One thought has been to try narrow release windows, but it's hard to keep people in theaters when they know they can buy the DVD eight weeks later -- or get a grainy pirated version the same week.