Read an article in today's New York Times that I found rather interesting and thought I'd share.

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NEW YORK TIMES
April 20, 2004
Studios Rush to Cash In on DVD Boom
By SHARON WAXMAN

LOS ANGELES, April 19 — The other day the chairman of 20th Century Fox, Jim Gianopulos, said he got a call from a lawyer friend. The friend said it was an anniversary of the firm and asked where he could get 100 DVD copies of the cult Fox movie "Office Space." The film made only $10 million at the box office but has become a hit on DVD. No one at Fox pretends to know why, but the film's success is another big drop in the river of DVD cash now flowing into Hollywood's coffers.

Not since the advent of the videocassette in the mid-1980's has the movie industry enjoyed such a windfall from a new product. And just as video caused a seismic shift two decades ago, the success of the DVD is altering priorities and the balance of power in the making of popular culture. And industry players, starting with the Writers Guild, are lining up to claim their share.

There's good cause. Between January and mid-March this year, Americans spent $1.78 billion at the box office. But in the same period they spent $4.8 billion — more than $3 billion more — to buy and rent DVD's and videocassettes..

Little wonder then that studio executives now calibrate the release dates of DVD's with the same care used for opening weekends, as seen by Miramax's strategic release of "Kill Bill: Vol. 1" a few days before the theatrical release of "Kill Bill: Vol. 2." (The DVD made $40 million its first day out.)

Studios now spend comparable amounts of money on DVD and theatrical marketing campaigns. Disney spent an estimated $50 million marketing the "Finding Nemo" DVD last year, said officials at Pixar, which made the film. It was money well spent. The DVD took in $431 million domestically, about $100 million more than the domestic box office. DVD has resuscitated canceled or nearly canceled television series like "The Family Guy" and "24," and has helped small art movies like "Donnie Darko" win rerelease in theaters. It is also beginning to affect the kinds of movies being made, as DVD revenues figure heavily in green-light decisions and are used as a perk to woo craft-conscious movie directors.

"There's not a sector of the entertainment industry to which DVD is not a significant, if not the dominant, contributor of revenue," said Scott Hettrick, editor in chief of DVD Exclusive, a trade paper, pointing to the movie and television libraries being released on DVD. Even in the ailing music industry, he noted, music DVD's are an area of growth.

"This is an unprecedented, huge influx of new money into the motion picture business," Dan Petrie Jr., president of the Writers Guild of America, West, said of the DVD boom. Union negotiators are demanding higher royalty payments in contract talks under way with the Alliance of Motion Picture and Television Producers, which represents the studios. Whatever deal is finally struck when the contract runs out on May 2 is expected to be followed by all the other Hollywood guilds.

While few dispute that DVD's are low-cost, high-profit items for the studios, the studios say they need every penny to survive in a time of dwindling profit margins, and with the menace of piracy looming large. The average movie now costs $64 million to make and another $39 million to market, according to the Motion Picture Association of America.

"In the last five years maybe 6 pictures out of 1,000 recouped their cost in the theatrical marketplace," said Nick Counter, president of the studio alliance. "Today the hits have to make up for all the losses."

For bigger-budget movies the DVD revenue has become critical. Nowadays, "basically the movies are commercials for the DVD's," observed John Lesher, an agent for the Endeavor talent agency who represents leading directors like Walter Salles, Paul Thomas Anderson and David O. Russell. Movies with budgets over $100 million now commonly just break even at the box office.

Stacey Snider, chairwoman of Universal Studios, said she had just asked her executives to analyze more closely the breakdown of profits in terms of the DVD revenues to figure out the changing model of the industry.

The old Hollywood model of needing to recoup three times the production cost at the box office to make a profit is long gone. But many are asking: What is the new model?

The answer to that may lie with a little-known movie called "Office Space" (1999). The satire by Mike Judge, co-creator of the animated television series "King of the Hill," cost 20th Century Fox about $10 million to make, and took in just $10 million at the box office. But on DVD the movie has become a hit, with the studio so far selling 2.5 million units, well over $40 million worth.

There are other examples of surprising windfalls. The Lion's Gate comedy "Van Wilder" was renamed "National Lampoon's Van Wilder" and has unexpectedly become a hit on DVD, where it sits alphabetically next to other National Lampoon movies.

A moderate hit like the DreamWorks comedy "Old School" starring Will Ferrell took in $73 million at the box office, but made an astounding $143.5 million on DVD.

Of course, even before DVD some films found larger audiences on video than at the box office; DVD has amplified the effect and the profits.

The format has another draw, a creative one. Directors now invest a lot of time into putting extra material into the DVD version, and the studios can improve their relationships with directors by creating special editions of their movies with hours of extra features. Peter Jackson added 43 minutes to the extended DVD of "The Lord of the Rings: The Two Towers" (New Line).

But that does not mean the studios do not wring every cent from each movie. Miramax is planning to release a half-dozen different DVD editions related to "Kill Bill."

"This is the beauty of having two volumes," said Rick Sands, chief operating officer at Miramax. " `Vol. 1' goes out, `Vol. 2' goes out, then `Vol. 1 Special Edition,' `Vol. 2 Special Edition,' the two-pack, then the Tarantino collection as a boxed set out for Christmas. It's called multiple bites at the apple. And you multiply this internationally." Mr. Tarantino has also cut an alternate version of the movie for Japan.

With the explosion of DVD advertising, it is easy to forget that the plastic plate, the digital versatile disk, has existed in the marketplace for only seven years.

Six years ago, before DVD mattered, Americans spent $18 billion on movie videocassettes. Last year, when the DVD ruled, they spent $22.2 billion on videos and DVD's, according to DVD Exclusive, adding some $4 billion of new consumer spending to the entertainment pot without visibly affecting sales at the box office.

One of the main changes is that consumers tend to buy DVD's, while they tend to rent videocassettes. (Studios sell their rental cassettes to stores like Blockbuster for far more than they do to consumers.)

The profit margin for studios is significantly higher on the laser disk format. A new study by Jessica Reif-Cohen, an analyst at Merrill Lynch, found that studios make an average of 66 percent profit margin on the DVD, compared with just 45 percent profit on the videocassette. She concluded, "We believe the perception of low returns on feature film production is no longer valid."

The guilds are not the only ones who are demanding their share of the new loot. Talent agents are also demanding that the studio abandon its long-standing formula of calculating profits, in which only 20 percent of revenues from DVD's and videos are used to calculate profit participation for directors and top actors.

The question has also become a principal focus of negotiations with actors being asked to participate in re-releases. Last fall the supporting cast of the hit television series "Seinfeld" balked at giving interviews for the DVD compilation until they were included in a share of the profits.

What no one knows is how long the windfall will last, whether DVD is a consumer bubble that will burst once the studios finish releasing the films and TV shows in their libraries, or whether it will remain a strong current in the entertainment industry profit stream.

"Right now the studios are making money hand over fist," said Mr. Lesher. "But in five years when you can download a movie as fast as a song, that will go away."

Mr. Gianopulos disagreed. DVD's will last "because of the uniqueness of that experience," he said. "It's no longer `I saw that movie.' It's `I saw that movie, now I'm going to see multiple dimensions of that movie.' That's why you want to own it."

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-NHN

geez, i didn't realize that dvd sales were that high! but i prefer to watch stuff at home so i don't have to be bothered by other people with cell phones and kids being kids. that, and it's cheaper to watch a dvd than to go to the movies during peak times.

Officially, *UGH*.
How long will the public keep riding THAT gravy train? Fool me once, shame on you. Fool me seven times in one year, and then what?

What to do, what to do -- Miramax has no s'es to turn into $'s.

>>Stacey Snider, chairwoman of Universal Studios, said she had just asked her executives to analyze more closely the breakdown of profits in terms of the DVD revenues to figure out the changing model of the industry.

[QUOTE][B]>>Stacey Snider, chairwoman of Universal Studios, said she had just realized that DVDs were a source of revenue and asked her executives to get their heads out of their collective asses and release some decent DVDs. She also decided that the concept of 'quality control' has probably caught on, so such a department will now be created at Universal.

I don't see why this article is so exciting that it warrants multiple posts like this, but at least this guy posted the whole article.

Did you read that, though? The only difference between that and the speculation being done all across the Internet is that this guy was an official doing the speculating.

Out of curiosity, if you're taking that as official announcement, who's being fooled? Even though that's far from official, I feel like Tarantino's been more than fair. He said, upfront, that there will be multiple versions; anybody who feels "fooled", at this point, is right to, because they are a fool.

Jeez - this is from the New York Times?? Did the original article have DVDs misspelled (DVD's) so many times?? Where's the Style Manual when you need it?

I agree, in both style and 'factual content' this article is pretty below-par. The New York Times used to be well above this.

Some of the blatantly-incorrect quotes from people that they just let go by without comment ("In the last five years maybe 6 pictures out of 1,000 recouped their cost in the theatrical marketplace") is nuts.

I don't think it's so much that Tarantino mentioned that there would be multiple versions, so much as the extent that the studio, not Tarantino, the studio, let's be clear here (ref: http://www.dvdtalk.com/forum/showthr...ight=kill+bill), is making these releases in order to drain every last nickel from their new-found DVD purchasing market.

Many in this forum have pilloried studios in the past for double-dipping, so perhaps I am not too far overboard in calling the company on its intended septuple-dipping.

My concern isn't directed towards those completionists who wish to purchase every KB DVD, but for the DVD-purchasing public at large who will undoubtedly grow tired of multiple, repackaged releases of the same product competing for their home entertainment dollar.

And as hard as it is to believe, try to keep in mind that not everybody has DVD news narrowcast to them in order for them to keep up to date on what multiple-dip versions will be on the way. Many people find out about these releases only after they hit the WalMart shelf.

That is the New York Times style for plurals of acronyms and numbers. (They refer to the 1980s, for example, as the 1980's.) I don't like it either, but that's how the New York Times has always done it.