Film Funding Blog

The basic issue on DVD sales, Greenfield reports, is that there has been a decline in catalog sales, as the “halo effect” from an expanding DVD consumer base is over. In short, almost everyone now has a DVD player, and they’ve replaced their VHS catalog titles - so now the market will be driven largely by the ability of the studios to produce hits.

http://biz.yahoo.com/seekingalpha/061008/18035_id.html?.v=1

Growth in the DVD marketplace is definitely slowing. However, this is really not a surprise to anyone. The major studios and other distributors forecasted a leveling off of the business several years ago. They thought that a High-Definition format would offer an even better home entertainment experience, and fuel new growth for the industry. The forwat war that has ensued has been a serious obstacle to the industry.

The DVD slowdown has profound, and negative, implications for independent films. Currently, theatrical distribution is often a losing proposition for indie films. The marketing costs to launch a film are expensive and very hard to recoup. However, the theatrical release sets up a film for greater success in other distribution channels. Profits can be obtained from DVD, television/cable, and other ancillary markets.

With deterioration in DVD sales, retailers will start to decrease the shelf space that they devote to movies. The retailers have to maximize the sales per square foot of selling space.  If DVD is not selling, they will shrink those departments and give that space over to other products. This means fewer titles purchased by the retailer, worsening the odds for independent films.

Retailers will try to increase their profit from DVD by negotiating for lower wholesale costs with the distributors.  Faced with the choice of losing shelf space (and the significantly reduced opportunity to sell DVD), or lowering wholesale prices (improving profit for the retailer at the expense of the distributor), distributors will opt for lowering cost/improving retail margin.  This means less revenue flowing to the distributor. As virtually all distribution deals for indie films have a revenue sharing component, this ultimately means less money flowing to independent producers.