Shop Talk: How the Bread Gets Buttered
By David Mumpower
February 7, 2013
The dozen years of Box Office Prophets analysis have included one constant: hallmark change in movie consumption. In this column, I will evaluate the latest marketplace revenue numbers. Before I do this, however, let’s discuss how history has a tendency to repeat itself.
Consider that in 1971, the first version of the video cassette recorder was released. In 1975, the infamous Sony Betamax debuted. Sony paid a lot of people in the profession to state that theirs was the superior product. In reality, their design suffered from a crippling flaw. Only one hour of recording could be performed on a single tape. Hollywood law dictates that a feature film must possess a viewing length of at least 78 minutes. No film could fit on a single tape. Also, Betamax cost hundreds of dollars more.
The format war between the VHS and Betamax continued for a decade, but Sony had already ceded the majority of the market share by 1981. From that point forward, VHS was the chosen movie medium. This type of VCR remained the dominant methodology for film consumption until the start of the 21st century. We are discussing a 30-year reign for a specific format.
Since 2001, DVDs evolved into the more popular format. Its versatility created historically unprecedented viewing options for consumers. Even better, the cheaper production costs of DVDs were passed down to consumers. Economically, DVD is still one of the most price-friendly viewing options available.
As the marketplace veered into the HD era, the marketplace bore witness to a second format war, one we chronicled at BOP. This time, the lower price point of HD-DVD was not enough to overlook the very real technical advantages of the Blu-ray player. Well, the price may have been enough but the studios all shared a vested interest in preventing a prolonged format war. Due to this, pressure was placed on some of the fence sitters to pick a side. Eventually, Blu-ray was chosen and HD-DVD collapsed.
The presumption at the time was that Blu-ray would replace DVD in the food chain. As all of you know by now, the marketplace exploded in the early 2000s as the rising tide lifted all boats. DVDs were so cheap to make and easy to sell that the home video portion of the movie industry revenue pie expanded exponentially. A $10.6 billion industry in 1995, the VHS video rental/sales era, the size of the pie grew to $20.9 billion by 2004. Much of that explosive growth stemmed from DVD sales.
Alas, Blu-ray never approached that level. In 2010, Blu-ray sales rose 68% to $1.8 billion. In 2011, consumers still spent $18 billion on home video. Alas, only $2 billion of that revenue stemmed from Blu-ray purchases. In 2008, Blu-ray was projected to surpass DVD in sales revenue by 2012. The additional expectation was that Blu-ray would become the home video revenue anchor that DVD had been earlier in the decade. This growth never materialized. The why of the conversation is the interesting aspect.