DVD Sales Figures Turn Every Film Into a Mystery by ravenu

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DVD Sales Figures Turn Every Film Into a Mystery

POSTED BY: RAVENU
UPDATED: Sunday, November 19, 2006 05:49
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Saturday, November 18, 2006 5:02 AM

This is an article I found that came from the LA Times back in 2005. This article comes from http://forums.dvdfile.com/showthread.php?t=53615 which has a link to the la times article. I'm going to post a few relevant excerpts here, cause it is rather long.

DVD Sales Figures Turn Every Film Into a Mystery
Studios closely guard details of what is a major source of profit and a growing area of dispute.
By John Horn
Times Staff Writer

April 17, 2005

Peter Jackson's three "Lord of the Rings" movies have brought New Line Cinema extraordinary fame and fortune. The trilogy won 17 Academy Awards, including one best picture Oscar, and sold $2.91 billion in movie tickets around the globe. The movies also were a huge hit on DVD, with overall sales totaling — well, if you actually happen to know, please call Jackson's lawyers.

The avalanche of money generated by DVDs has transformed Hollywood, swinging profitability from the multiplex ticket window to the Wal-Mart checkout line. Income from the sale and rental of new movies, television series and classic films accounts for as much as 60% of a major studio's profit, as DVDs have become a consumer electronics phenomenon. Yet even in a business that trumpets every nickel of box-office grosses, a title's precise DVD profit remain one of the industry's best-kept — and, increasingly, most divisive — secrets.
.....

Interviews with a dozen leading talent agents, managers, lawyers and studio executives suggest that DVD compensation is likely to be among the hardest-fought negotiating points for years. The battle over DVD royalties is not being fought just in the courtroom; it is an ongoing clash in any number of show business contract negotiations.

The stakes are indisputably high. DVDs have provided the fastest-growing segment of show business returns, with 2004 domestic DVD sales reaching $15.5 billion and DVD rentals grossing $5.7 billion, according to the Digital Entertainment Group. Videocassette sales and rentals brought in $3.2 billion, while domestic theater ticket sales totaled $9.5 billion last year. The DVD windfall has taken on even greater importance now that overseas movie earnings are slowing.

"They are the critical component to the success and profit of any film," says Amir Malin, the former chief executive of Artisan Entertainment and co-founder of the show business investment fund Qualia Canyon Capital. "It's the biggest piece of the revenue pie, far surpassing theatrical and television."

Even though Hollywood's labor unions have failed to make any headway in getting a share of DVD profits, individual movie artists are free to argue for a bigger slice of the proceeds. The studios say that any DVD concessions would bring financial ruin, but cracks are starting to appear in their previously united front, fissures that could ultimately provide the clearest view of the battleground.
.....

The studios insist that the DVD sales information they supply to actors, directors and writers is accurate and timely and that DVD audits are both routine and welcome. Yet even the town's most powerful agents and managers say they are not certain how much money a particular DVD brings in.

Unlike domestic box-office grosses, which are announced every week, there is no uniform and public DVD reporting. Some studios say accurate industrywide DVD sales numbers cannot be generated because Wal-Mart, which typically accounts for more than a third of all DVDs sold, does not make public its sales data.

But one studio said privately that it guards its DVD sales information because it does not want to encourage filmmakers and actors to seek more DVD money.

Even on public financial statements, studio rules differ. MGM disclosed its overall video revenue, but Sony, which led the just-completed MGM buyout, does not. Furthermore, studios have different ways to account for home entertainment rebates, returns, discounts and revenue sharing.
.....

"But the artists, especially the directors, are asked to do a lot more work to enhance the value of the DVD," Kamins says. "We've moved well past the time where a director just slapped a vocal commentary on a disc. They now supervise six to eight hours of additional content. And that's what gets reviewed and sells — the bonus features, not the movie. Yet there's no specific compensation for all of that extra work."

Tired of walking into contract talks in ignorance, the leading talent agencies and management firms have assembled research teams to study DVD revenue and costs.

Still, improved DVD deals for actors, writers and directors have been elusive for all but the top echelon, with A-list names like Jackson, Steven Spielberg, Tom Cruise, Tom Hanks and Brad Pitt securing a greater percentage of DVD revenue.

Under current terms, almost all of a movie's actors, directors and writers receive royalties that are based on 20% of a DVD's net income (the remaining 80% goes straight into a studio's coffers). Those few top stars and filmmakers are starting to get royalties based on 50% and more of a film's net income, but the studios want to keep that privileged fraternity from growing by even a single new member.

In an attempt to rebuff the growing number of agents seeking similarly enriched DVD deals, the studios are offering a variety of other financial incentives, including larger bonuses based on box-office returns.

The studios maintain that the silvery discs, which for a popular title cost about $5 to manufacture, market and distribute and sell for about $15 wholesale, almost always mean the difference between a film's profit and loss.

If a movie tanks at the box office, DVDs can offer the last, best place to stem the losses. DVD income can salvage failed television series and generate streams of cash from older movies. A movie frequently collects more money on DVD than in theaters.

"It's not at all unusual for films that do $40 million to $50 million at the box office to do $50 million to $60 million on DVD," says Dave Davis, a financial advisor to several movie studios.

Even a box-office blockbuster may reach profit only when it arrives on DVD shelves because movies have become so expensive to produce and market, with the average studio release running $98 million last year.
.....

Although studios often hype a film's first week (or even first day) of DVD sales, most studios don't release periodic sales information.

"As a matter of policy, we just don't give out numbers," says Stephen Einhorn, president of New Line Home Entertainment.

"It's been traditional for studios to brag about box-office performance," says Tom Adams, an experienced home video analyst who runs Adams Media Research. "But it's also been traditional to keep the home video data very tightly held."

Increasingly, agents and managers hire companies like Adams' to investigate sales information for a particular title, partly out of concern that residual payments might be too low.
Despite the concerns over accounting, quite a few people besides the studios are making money from DVDs. One actress with just four lines in "A Bug's Life" was paid $500 for performing in the animated film but has received tens of thousands of dollars in subsequent DVD royalties.

Just something I thought others might find interesting and makes one wonder even more just how many copies of Serenity did Universal sell.

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Saturday, November 18, 2006 6:31 AM

HARSHCRITIC

I think that Serenity did do well on DVD. Universal made enough of a profit to consider a lower budget straight to dvd release that could air later on Sci fi as an original movie. Come on Sci fi makes a ton of original movies, so it's not unrealistic.

There would be plenty of fans interested in that and Universal could make money. Thus, my guess is there is something else going on here that we do not know about. Creative differences maybe? I really don't think it is a question of money anymore.

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Saturday, November 18, 2006 9:53 AM

SIRI

I just turned on a couple of friends to Firefly and Serenity. They hadn't heard of the series or the movie. I'm lending out my copies and plan to replace them. Any suggestions on whether it's better to purchase at one place or another? I mean as far as helping "the cause?" I'm going to order today 'cause I can't go too long w/o my FF fix.

Thanks.

"Well, that's a heck of a thing to say!"

Siri

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Saturday, November 18, 2006 8:20 PM

ANONYMOUS1

ravenu,

Thanks for posting the great article.

Did the article state anything about what a studio gets for a rental? A fan posted that at least for the first year since dvd release, NETFLIX sends a fee to the studio for every rental.

Or how about what happens when a movie makes more than budget from box office? I'm thinking the studio has to pay directors and writers and actors??? something because it seems like if the movie is not a blockbuster, the studio does not go for full worldwide release and stops release when the movie gets close to budget. There must be some financial disincentive involved or something else going on.

Quote:
Under current terms, almost all of a movie's actors, directors and writers receive royalties that are based on 20% of a DVD's net income (the remaining 80% goes straight into a studio's coffers). Those few top stars and filmmakers are starting to get royalties based on 50% and more of a film's net income, but the studios want to keep that privileged fraternity from growing by even a single new member.

Shiny. I thought only the studio got money from the DVDs. Interesting that it is DVD's net income. Not movie box office-dvd net income. I thought the studio would have to offset the budget and advertising spent on the movie before they could pay anything from the DVD. Looks like it is a separate thing.

Quote:
The studios maintain that the silvery discs, which for a popular title cost about $5 to manufacture, market and distribute and sell for about $15 wholesale, almost always mean the difference between a film's profit and loss.

Shiny. $5 to manufacture, market and distribute. I thought it was $5 to only manufacture.

Quote:
If a movie tanks at the box office, DVDs can offer the last, best place to stem the losses. DVD income can salvage failed television series and generate streams of cash from older movies. A movie frequently collects more money on DVD than in theaters.

"It's not at all unusual for films that do $40 million to $50 million at the box office to do $50 million to $60 million on DVD," says Dave Davis, a financial advisor to several movie studios.

Chuckle. Looks like they are talking Firefly and Serenity there.

Doesn't seem to say whether box office means US box office only or worldwide box office. So I'm assuming they mean worldwide box office.

http://www.boxofficemojo.com/movies/?id=serenity.htm

Budget 39,000,000.00
Worldwide Box Office (last posted figure)
38,851,952

Word I've read is that the movie has to make double the budget in box office to be considered profitable.

So double the budget is profit, then 39,000,000.00 divided by $10 = Universal needed to sell 3,900,000 Dvds.

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Sunday, November 19, 2006 5:49 AM

RAVENU

Actually I think they may be going by US box office results only since the article mentioned the decline of the overseas market.

The article did mention that DVD rentals are grossing $5.7 billion, according to the Digital Entertainment Group 2004 data.

Net is what is left after all the cost have been covered. So it is after the production cost are met and if they are not cover by box-office returns, I am sure the accountants will tact it onto the DVD profit. You also have to concider that a DVD is a seperate company from the production so there are added built in cost there as well. It's a very big game, and most people outside of the studio and accountants don't know what is going on. It's a complex situtation with a few players doing there best to keep everyone else in the dark. Until there is some accountability by the studio we may never know the real figures.

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