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Apple and Amazon crush movie studios

Posted Sep 22 2009, 06:02 AM by Douglas McIntyre
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DVD sales are flagging and rentals are up -- news likely to be unwelcome at the major movie studios. The Digital Entertainment Group announced that in the first half of this year, DVD sales fell almost 14% to $5.4 billion. DVD rental  revenue rose 8% to $3.4 billion.

While kiosk operator RedBox and DVD mailer NetFlix (NFLX) are a large part of the rise in rentals, it is Apple (AAPL) and Amazon (AMZN) that really crush studio DVD sales.

Revenue for online stores was up 21% for the period to $968 million. At that rate of growth and the drop in DVD sales, Apple and Amazon have become essential to studio revenue and a real danger to premium DVD profits.

The data shows the continuing shift of power away from the huge content-creating studios owned by Viacom (VIA), Sony (SNE), News Corp (NWS), and Time Warner (TWX) and toward the increasingly powerful digital content companies which have systems for downloading films on portable devices and set-tops.

There is little the studios can do to arrest the growth of the burgeoning digital model. Most industry experts say that the content companies have much smaller margins on their Apple downloads than they do on DVD sales.

Paradigm shifts of this kind are called creative destruction by business school professors. From the standpoint of the studios, it is just destruction plain and simple.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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Comments

 

The incompetent movie studios deserve it. They resisted change and it happened anyway. Imagine that!

Right now the world is in a technological shift that is unprecedented.  For more than 100 years the studios have been able to control everything that has happened concerning their movies.  Since the late 70's they have been able to take advantage of a market where they can sell their movies direct for people to enjoy them at home over and over.  As technologies have evolved, the studios tried to hold onto this model of having total control and therefore total profits.  Now, they no longer hold this power.  This is due to the explosion of the Internet and Broadband technologies allowing for On-Demand movies and TV.  This is why we will soon see the destruction of the original TV Models we've grown accustomed to over the last 50+years.  I made a predicition 20 years ago as I built my first "media PC" that most laughed at and said nobody would have a computer hooked to a TV and watch it.  Today, my predicition has indeed arrived and in spades.  Now, the studios need to make a decision...do they get with the program and offer what the consumer wants, or end up dying financially a slow painful death.  Disney has slowly incorporated allowing its movies to be digitally available, but even they have a ways to go.  They understand more than anyone what will happen if they don't evolve.

Music studios are already moving in the right direction as they have gotten rid of DRM and are getting in line to offer at a decent price the artists music.  Some artists are releasing songs on their own directly to promote them, and I think in the near future, the major labels will have even less pull and the RIAA and MPAA will eventually fall apart as organizations because of the changes in the industry.

TV, Movies and Music will never go away, but the content and its distribution will change, and very likely in the next decade or two, very dramatically from what we are used to now.

WXeazb I want to say - thank you for this!

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