Studio sees better profit margins in emerging technologies - AVS Forum
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post #1 of 2 Old 03-03-2009, 07:20 PM - Thread Starter
 
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Interesting market data.

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DVD revenue is softening, acknowledged Time Warner chairman/CEO Jeff Bewkes on Monday, but he is far from counting out the home entertainment market.

Speaking during the 2009 Deutsche Bank Securities Media and Telecommunications Conference in Florida, Bewkes noted that strengthening emerging technologies, such as Blu-ray and video-on-demand, are working to offset standard-definition DVD losses.

Also, although new media sales are dwarfed by traditional DVD sales for the studio, Warner is enjoying better profit margins with VOD rental, download sell-through and Blu-ray.

VOD rental churns out a 70% higher dollar yield than physical rental, according to Bewkes. Additionally, Blu-ray and iTunes sales bring about a 40% increase in margin over traditional DVD sales.

The standard DVD business that has been a huge growth engine has been slowing down and maturing, but the new businesses, whether it's Blu-ray or electronic VOD for rental or sell-through are picking up quite nicely, said Bewkes. I'm not saying revenues from those have to exactly match DVDs as they decline. But we shouldn't rush for the exits yet on that.

Bewkes also is pleased that sell-through remains the most popular online delivery method for consumers, matching their preference with physical DVD. He dismissed concern that the studio might lose money if people increasingly rent VOD movies, rather than buying them.

The question has been with the new online versions. Will [people] move too much to rental? asked Bewkes. But it has been two-thirds purchase, and one-third rental. That is the same breakdown with physical DVD.

In specific examples, 94% of The Dark Knight online transactions were for purchase. For Sex and the City and The Bucket List, 80% and 68% were purchases, respectively, according to Bewkes.

http://www.videobusiness.com/article...dustryid=47214
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post #2 of 2 Old 03-03-2009, 10:49 PM
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Profit margin is an after-tax calculation.

You probably mean gross margin, but that's just a guess.

Sales
-COGS
=GM

BD sells for about $10 more than DVD and costs about a couple dollars per disk to press. Yes, gross margins are higher.

With VOD,

Sales
-COGS
=GM

Where sales are about the same and COGS is drastically lower. Gross margin is higher here.

But even now we have to add SG&A expense to the mix before we can get to operating income before tax. I have no idea which has a higher SG&A, but I'm sure it isn't cheap for either.

It isn't the size of the disk that counts, but how you use it.

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