warned yesterday that it would miss its second-quarter estimates thanks to greater-than-expected returns of its animated hit
, but short-term negative effects aside, a much broader issue is at play here.
The stock was tumbling Friday morning off the postclose forecast. At last glance, the studio that also gave us
was down 13% to $43.71.
is the best-selling home video title of 2005 to date, and we continue to expect it to generate home video revenues similar to
," Pixar CEO Steve Jobs said Thursday. "But based on the most recent sell-through information, we have opted to be more cautious with respect to our second-quarter home video reserves."
Jobs, no fool he, decided it was better to play it safe with Wall Street and get the bad news out now, rather than face the shock and awe of investors next month when the company reports second-quarter earnings.
two months ago dropped the ball and failed to give the Street a head's up with respect to DVD sales on
Pixar is doing the right thing by letting the market know that DVD sales on
are off track from their and partner
But the issue of DVD returns has little to do with Dreamworks or Pixar specifically, other than the fact that both companies had smash animated hits -- it's reasonable to suspect that it has much more to do with piracy.
Raiders of the Lost Copywrite
Yesterday the Justice Department initiated "Operation Site Down," a multinational crackdown on Internet piracy just days after the U.S. Supreme Court ruled against file-sharing services in widely heralded decision. In the operations, the FBI and authorities from 10 countries raided piracy groups.
"Warez" groups release films, music and other copywrited material, costing entertainment companies $3.5 billion annually, not including Internet piracy, according to the Motion Picture Association of America. The MPAA, citing a Smith Barney study that includes Internet piracy, estimated that this year alone, the movie industry will lose $5.4 billion to piracy.
Star Wars: Revenge of the Sith
, from Lucasfilms and distributed by
20th Century Fox was widely distributed through illegal means as it was released, according to many reports.
"We applaud the efforts of the Department of Justice and the FBI and their overseas counterparts with respect to Operation Site Down, and are happy to have assisted them," John Malcolm, the MPAA's director of worldwide antipiracy operations, said in a statement. "We are well aware how difficult it is to identify and investigate secretive and tech savvy release groups which are able to operate in many countries because of the worldwide reach of the Internet."
One key element in the returns of DVDs for high-grossing theatrical releases doesn't appear to be that people aren't buying them; in fact, both
have broken DVD sales records. The reason is likely to do with the fact that hyperpopular films are available through
or are accessible through video on demand and are being heavily pirated.
Dreamworks has been blasted hard since DVD sales of its smash hit
fell short of expectations. The company overestimated first-quarter sales and subsequently faced a slew of returns.
If today's trading is any indication, Pixar is now in a similar stew. The current Pixar earnings warning and Dreamworks' issues, while raising questions regarding the difficulty of accurately tracking DVD sales, highlight an enormous problem for media content providers. Namely that they face an uphill battle to hit targets and drive legitimate sales in a theft-ridden online environment.