DVD Sales Crushed By Rentals, As Apple (AAPL) And Amazon (AMZN) Rise

September 22, 2009 by Douglas A. McIntyre

bearDVD sales are flagging and rentals are up, news which is 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 are really crushing the 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 kinds are called creative destruction by business school professors. From the standpoint of the studios, it is just destruction plain and simple.

Douglas A. McIntyre