And Just Where, Exactly, Are We Headed?

By: Thomas K. Arnold | Posted: 31 Aug 2010

As we move toward yet another critical fourth quarter--which in this business tends to have a "soft opening" in September, with the first trickle of high-profile DVD and Blu-ray Disc releases--is there anyone out there with a firm grasp on where, exactly, this business is heading?

The national economy is certainly one factor, and here the prognosis is cloudier than ever. For months, we've been talking about "recovery," and yet with joblessness still at record highs and the recent news of an abrupt slowdown in the housing market, the latest jabber from Washington is about this being a "jobless recovery," whatever that's supposed to mean. Let's face it: if people don't have jobs, they aren't going to have money. And if they don't have money, they can't spend it. And anytime you have a slowdown in consumer spending, guess what? It's the "R" word again (as in "recession," for those with short attention spans).

So in short, the recovery is petering out--if there ever was a recovery. And there's a whole school of economic thought that believes once the Bush tax cuts expire at the end of the year, the economy will tank even further than it did the last time around. This could mean a robust fourth quarter for DVD and Blu-ray Disc sales, followed by another dramatic slowdown--for the third consecutive year.

Of course, that's the worst-case scenario--and, ultimately, we're not going to know what's going to happen until it happens. And if we're looking for clarification by studying some of our own industry's economic indicators, the outlook is just as murky. DVD and Blu-ray Disc software sales are still down from last year, and what's more frightening is that if you compare the box office strength of movies released in the first half of this year to that of movies released in the first half of 2009, you'll find the 2010 tally is significantly higher--which makes the gap in consumer spending even more disturbing.

Just in the last week, we have learned that 1) shipments of televisions in North American fell 3% in the second quarter; 2) sales of HDTVs with big screen sizes (40 to 65 inches) rose 26% in June; 3) Coinstar, parent of home entertainment wunderkind Redbox, made Fortune magazine's list of 2010's top 100 fastest-growing companies (on the eve of Redbox's upcoming announcement that it has just clocked its one-billionth rental, I'm told); 4) Blockbuster is on the verge of filing for prepackaged bankruptcy; 5) summer movie attendance, despite 3D, fell to a 13-year low; and 6) just as 3D software, on Blu-ray Disc, is gearing up to appear on the market, we're hearing talk that Toshiba is developing a 3D system that doesn't require glasses, creating further confusion--and, potential, consumer hesitancy.

So what to make of all this information? Your guess is as good as mine. I will say that I had an interesting conversation the other day with a manager at the local Best Buy, and he said that while Blu-ray Disc hardware sales had slowed--a fact he attributes to 1) some consumers wanting to wait for 3D players, and 2) other consumers still not knowing what Blu-ray is--Blu-ray software sales had picked up significantly. "It's the price," he said. "You can get Blu-ray Discs for 10 bucks, and that's making Blu-ray owners, who already are really into movies, buy like crazy."