Studio Chiefs See DVD Market Stabilizing

Tom Rothman, co-chairman of Fox Filmed Entertainment, and Warner Bros. Chief Executive Barry Meyer both said the DVD sales market is stabilizing now after it suffered a sharp downturn in 2009.

The comments came as the two studio chiefs were interviewed separately at an investor conference in California by a sell-side analyst.

DVD sales have been a key source of profits for film studios, and their decline, which many observers view as a permanent result of the rise of digital video distribution, has weighed on the studio arms of major media and entertainment conglomerates.

"Nobody has a crystal ball, but I think there's growth ahead next year," said Rothman, and he said Fox has a particularly strong set of films set for release in DVD in the company's fiscal fourth quarter.

Fox is owned by News Corp. (NWS, NWSA), which also owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal.

For his part, Meyer said he thinks physical DVDs will have more staying power in the marketplace than expected.

U.S. consumers spent an estimated $2.26 billion on DVD and Blu-ray movies in the second quarter, down 14% from the same period a year ago, according to Nash Information Services LLC, a home-video market-data provider. That figure has been in steady decline since the third quarter of 2007--the year that spending in the category peaked at nearly $16 billion. Last year, the market shrank to less than $13 billion.

The film industry is experimenting with emerging digital distribution channels and it's tinkering with the timing of film releases on different platforms in order to offset DVD sales declines and cobble together a new business model that will spur growth.

Both Rothman and Meyer said there is room for a new premium video-on-demand offering for films that would become available after their theatrical release and before their DVD release, but they also said the 30-day lag-time after the theatrical release date that has been reported in the media is too short. In considering such a business, studios risk straining their partnerships with powerful theater chains on one side, and retailers and pay-TV operators on the other.

Meanwhile, Meyer said that Epix--the premium movie network launched in a joint-venture between Viacom Inc. (VIA), Lions Gate Entertainment Inc. (LGF) and Metro-Goldwyn-Mayer Inc.--didn't carve out a new window in its new distribution deal with Netflix Inc. (NFLX). By making films available on Netflix's on-demand streaming service 90 days after their premium-pay TV and on-demand debuts in a billion-dollar, five-year deal, Meyer said Epix was encroaching on the pay-TV business--a potential threat to the television industry's most lucrative source of revenue.

At the same conference a day earlier, Time Warner Cable Inc. (TWC) Chief Financial Officer Rob Marcus signaled his own disapproval of the Epix-Netflix deal. Epix has yet to reach a distribution deal with Time Warner Cable, the nation's second-largest cable operator, as well as Comcast Corp. (CMCSA), the nation's largest cable operator.

With its Epix deal, Netflix became a more direct competitor with HBO, which is owned by Time Warner Inc. (TWX), which also owns Meyer's Warner Bros. But Meyer dismissed questioning about whether its corporate parent would prevent Warner Bros. from fully exploiting its content through Netflix in order to protect HBO.

"More competition is good for our business," he said. "If Netflix can pay more for our content, then I would expect that HBO can too."

-By Nat Worden, Dow Jones Newswires; 212-416-2472; [e-mail]