Studio executives, who often rely on DVD sales to push a film into the black, quietly have been expressing concern about a 30% decline in DVD shipments to retailers in the fourth quarter. This drop in home entertainment sales hit Disney's studio hard. Disney's studio division revenue for the quarter fell 26% to $1.9 billion and operating income plunged 64% to $187 million. Consumers bought fewer new releases on DVD and there was less demand for Disney's classic titles.
Anthony J. DiClemente, an analyst with Barclays Capital, said this was the first time a studio executive had publicly acknowledged that falling DVD sales might have something to do with changes in how people watch films. The shift could rock the economics of the movie industry, which depends on home video sales for as much as 70% of a film's profit, he said.
"With the DVD business in decline, it brings to question whether or not investment in filmed content is going to generate an adequate return on capital for Disney or other media company shareholders," DiClemente said. "The industry is caught in a vortex of dramatic, structural change."