Who's Making Money Off DVDs?

I received a few requests over the past couple weeks to explore what I think has happened to the dvd business, and by direct affect, independent film distribution. Before getting into that it's neccessary to remember just how important dvd revenue is for a profitable independent film distribution model. TV sales were always a crap shoot for most independent and arthouse theatrical releases, especially those in a foreign language. Even if a film did secure one, the license fees were welcome but insubstantial. This left dvd sales. And for about ten years, which not so coincidentally parallels the rise of independent film in the marketplace, dvd successfully underwrote most independent theatrical releases. Now that this revenue stream is reduced, it is compromising every area of independent distribution, which of course will quickly affect independent film production--investors stop spending money on losing ventures (its how they keep their money).

So if video killed the radio star, who put the button on dvd? There are a number of factors that have contributed to the steady decline of dvd revenue. I have laid them out chronologically for us to look at.

1. Too many mediocre films have been released theatrically and then on dvd. IFC Films is a big culprit in this regard. Remember that they have a tv channel to feed and so their agenda is different from every other independent distributor. Films can be ok and still be acceptable on television. But at $30.00 a pop at Borders, they better be a hell of a lot better than ok if you buy one. The net result of too much mediocrity is a chastened customer who concludes that their average dvd purchase will no longer be worth the money. The cache, or perceived value, of any one dvd has been at the heart of dvd's popularity for all movies, but especially independent films. This devaluing of the average dvd has been a major factor in the medium's decline.

2. The rise of Netflix. Their business model is great for consumers, especially in the short run. However, because of their setup, Netflix can service their customers with roughly 20% of the inventory that a brick and mortar chain like Blockbuster needs. Netflix can simply mail their copies around the country while Blockbuster and Hollywood Video must stock each store with at least one copy. This descrepancy has pressured Blockbuster in particular, to cut back on the number of independent titles, and units of these titles, that they order. We're talking thousands and thousands of units that are no longer being purchased. A subtler impact from Netflix is the decline of the browsing experience. While their website continues to improve, it is still a far cry from the experience of strolling through Blockbuster to see what seemed appealing that evening. Brick and mortar rental stores provided independent titles with a level playing field to compete with the Hollywood releases. If a film looked good in the box, had some interesting critical quotes, etc., consumers would give it a chance. Finding that same film on Netflix without already knowing the title is akin to finding a needle in a haystack.

3. Collapse of retail sales for independent and arthouse titles. Remember Tower Records? As financial pressures have mounted on the big retail chains, and they see their competitors go out of business, they have become more and more reliant on fast selling product, including dvd. Even if they are making less money per unit, these retail chains have convinced themselves that they are better off devoting entire shelves to Spider Man 3 than stocking slow, but steady selling independent and arthouse titles. Now with the occassional exception of Borders and Barnes And Noble, there is no retail presence for independent and arthouse titles in retail. I am sure that factors 1 & 2 also contributed mightily to this situation.

4. The rise of Video On Demand. Why even bother with Netflix if you can sit on your couch and browse through a decent, if limited, selection of films to rent by clicking a few buttons? The answer should be obvious. I think that eventually the independent and arthouse catagories will have to be included by these services, or website delivery connected to the tv will do it for them. But until that happens the independent and arthouse titles are in a pickle.

So that is why I think dvd sales for independent and arthouse titles have declined so much over the past few years. Feel free to add your two cents in the comments section. Are things different regionally? Does high speed internet and digital tv delivery change things? I am curious to learn what you think.