STUDIOS SEE STRONG FUTURE FOR VIDEO RENTAL

Dan Alaimo

LAS VEGAS -- DVD has changed the video retail landscape, but it has also changed the way Hollywood makes movies, said a panel of top studio executives during the recent Home Entertainment 2003 show of the Video Software Dealers Association, Encino, Calif.

But one thing DVD hasn't changed is consumers' appetite for video rental, even though it has been responsible for unprecedented sell-through growth, the panelists said.

"We project that over the next five years, the rental business will grow somewhere in the area of 50% to 60% over its current level," said David Bishop, president and chief executive officer, MGM Home Entertainment, Santa Monica, Calif.

"They have been predicting the demise of the rental business for a long time, and no matter what is thrown at the rental business, it always comes out on top," said Robert Chapek, president, Buena Vista Home Entertainment, Burbank, Calif. "I don't think there is anything on the near or even the mid-horizon that is going to pose any risk to the rental business."

Year after year at the VSDA conventions, the hot topic has consistently been the various threats to the rental business, such as pay-per-view, video-on-demand and the Internet, said Tom Lesinski, president, Paramount Home Entertainment, Hollywood, Calif. "It's amazing how resilient and tenacious the retailer has been. Now DVD is providing another opportunity for the rental business," he said.

"There are no indicators that the rental business is going to subside," said Kelley Avery, head of Dreamworks Home Entertainment, Glendale, Calif. There was concern that the advent of sell-through-priced DVDs would have an impact on rental. "But at Dreamworks, we never believed that...More people watch movies by renting them than they do going to the theaters or buying them. So in my view, rental is going to continue to be a strong business. It's just a part of Americans' lifestyle."

On the sell-through side, DVD has resulted in a big change in the demographics of the typical purchaser, Bishop said, with more teens and older males buying the products.

"DVD has totally changed our businesses from selling a few million units into the trade to selling hundreds of millions of units to consumers," said Jim Cardwell, president, Warner Home Video, Burbank, Calif. It has also changed the way consumers perceive prerecorded software, dramatically increasing their willingness to purchase, he said.

"Thirdly, it's shifted the creative process a little bit away from theatrical and away from the linear VHS experience to much more interactive, value-added materials. It's moved the creative process a little bit toward home video, away from theatrical," Cardwell said.

To create and deliver the added-value material on DVD requires the video divisions to work much more closely with the production units, said Stephen Einhorn, president and chief operating officer, New Line Home Entertainment, Los Angeles. This is a big change from the days when home video was regarded as an afterthought in the movie studio corporate culture. "I wouldn't say they've reached the stage of being deferential, but they acknowledge our existence now," Einhorn said.

Some directors look at DVD as the format where their movie is going to permanently live after its theatrical run, said Mike Dunn, president, Twentieth Century Fox Home Entertainment, Beverly Hills, Calif. "Some are more aggressive than others. They want to start building their DVD at the beginning of filming the movie. They have a vision for it," he said.

"For the studios, home video is now the single largest revenue generator," Avery said. While video has long played an important role for the studios, "now the trend is toward being part of the whole creative production process."

While the window between the theatrical run and video release has been getting shorter, the addition of bonus materials to the DVD takes time, Einhorn noted. "We are constrained by how quickly we can get the DVD added-value material done to meet the release date goal," he said. Often the studio has to choose between meeting that date and cutting back on the bonus features.

The logistics of producing 10 million to 20 million copies of a hit DVD also limit the window from becoming any shorter than it is, Chapek said. With the filmmakers working on the DVD, "they still tend to deliver movies right on time, or a little bit past right on time... So it's really tough to go past the four-month window," he said.