DVD slump challenges studios
Saturday July 2, 11:23 am ET
By Gina Keating
Reuters
http://biz.yahoo.com/rb/050702/media_dvdsales.html?.v=3
LOS ANGELES (Reuters) - Shortfalls in sales of two of the summer's biggest
DVD releases, "Shrek 2" and "The Incredibles," underscore the changing
nature of the home-entertainment market but do not point to an impending
slump, analysts said on Friday.
Pixar Animation Studios Inc (NasdaqNM:PIXR - News) cut its current-quarter
earnings target on Thursday after slower-than-expected DVD sales of "The
Incredibles." Rival DreamWorks Animation Studios SKG Inc (NYSE:DWA - News)
reported similar trouble with its "Shrek 2" DVD in May.
Analysts said the shortfalls were reported as DVD sales were changing to
parallel the way that major movie releases make their money at theater box
offices with an initial burst followed by a quick drop-off.
Both studios saw double-digit drops in their share prices after their
announcements, and some industry watchers feared a broader slowing in DVD
sales -- led by two of the most popular discs ever.
"Shrek 2" was the top-grossing animated film of all time. The "Incredibles"
DVD has sold more than $450 million worldwide since its release in
November, Pixar said on Thursday.
In a note to clients on Friday, analyst Rich Greenfield of Fulcrum Global
Partners said he worried consumer spending was weakening as both box office
and DVD sales had failed to measure up to expectations.
He also said big retailers might be replacing titles faster on shelves in
the face of a larger volume of titles, including television show compilations."
But analyst Jan Sakston of Adams Media Research said it was not clear that
"Shrek 2" and "The Incredibles" sales suffered from a short shelf life
span, since most DVDs post the bulk of sales in the first few weeks after
release.
Retailer Best Buy reported steady demand for DVDs.
"We don't have the sense of 'Incredibles' not doing well. Our general
perception is one quarter of softening DVD sales doesn't make a trend,"
said Brian Lucas, a spokesman for Best Buy.
"From our perspective there's still lots of passion on DVD and we have lots
of shelf space devoted to it," he said.
The DVD retail market is expected to increase from almost $17 billion in
2004 to $27 billion in 2009, according to a forecast by PriceWaterHouseCoopers.
Sanders Morris Harris analyst David Miller cautioned that the two sales
shortfalls differed in scale. He said it was dangerous to draw a sweeping
conclusion about the market.
He estimated that Pixar had shipped about 1 million too many discs of "The
Incredibles," while DreamWorks fell about 10 million units short of its
forecast on "Shrek 2."
DreamWorks has been sued by investors who accuse the company of pumping up
sales estimates to inflate its share price ahead of a secondary stock offering.
"For anyone to believe this portends some secular threat or secular trend
is ridiculous," he said.
Miller said 80 percent of DVDs were being sold within the first two weeks
of a new release, making it imperative for the studios to adapt with a more
conservative strategy.
================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923 Fax: 713-743-3927
antunes at uh dot edu
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