http://arstechnica.com/news.ars/post/20050402-4767.html?28636DVD profit margins double that of VHS
4/2/2005 1:12:51 PM, by Ken "Caesar" Fisher
If you've ever wondered how the DVD market has worked out for the movie studios, we can now give you an idea. Metro Goldwyn Mayer, better known as MGM, has put a number of what appear to be slide presentations in a publicly accessible portion of their web server. The reports cover a number of business-related matters, including the company's impressive cash flow, information about their library holdings, and more.
The most interesting information details the strength of the DVD market. Between 2002 and 2003, MGM saw a 40% boost in DVD shipments in North America, and 53% increase worldwide. One slide shows just how quickly DVD has caught on: it took only five years for 30 million DVD players to be sold, compared to circa 8 years for CD players, and 10 years for PCs to reach that volume. All of this translates into a booming market, which helps explains the considerable profit margins attached to DVDs. This slide indicates that net profit margins on DVD sales are 50-60%, while the lingering VHS business sees 20-30% net profit. To put this into plain English, your average $20 DVD apparent costs around $9 to produce, advertise, distribute, etc., leaving about $11 on top as pure profit. For an industry supposedly under dire threat from piracy, things look pretty rosy.
This impressive profit margin at MGM may or may not reflect what's going on at other studios, but I think it's reasonable to say that it's roughly the same among the leaders. If I can beat one of my favorite dead hourses, this data lends credence to the argument that studios should provide simultaneous theatre and DVD releases. While theater revenues weighed in at US$9.4 billion in 2004, DVDs tipped the scales at $15 billion, and everyone expects it to increase. Furthermore, the theaters are currently engaged in price hikes to bolster revenues in the face of slightly dwindling audiences. Of course, I have to admit that there is some overlap between the two groups. Many are those who will both see a movie in the theater, only to buy it on DVD later. This need not preclude the possibility of simultaneous releases, however.
One thing is certain: these DVD numbers clearly show that people want to pay for compelling content. DVDs are superior to VHS in every way (save their oppressive encryption), they're roughly the same cost to produce as VHS is these days, but many people are willing to pay more.
For more information, you can basically browse through their directories and see all sorts of information, but if you don't want to snipe around, you can use the opendirviewer to browse any given directory. For instance, this will let you look at a presentation from 2004. You might want to look quickly, however. It's not clear if this information is meant to be public or not, although if it's not, it's odd that it's totally insecured.
(cont on the site)
