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DVD slump: It's not all bad news?

Pali Research made waves last month by predicting that U.S. consumers would spend less on DVDs in 2007 than they had in 2006 -- the first decrease in Hollywood's current home-video motherlode. Pali based its estimate on financial reports from Best Buy and Circuit City, which showed year-over-year declines in DVD sales in five of the eight previous quarters.
Those results seem consistent with numbers released by the Digital Entertainment Group, which showed year-over-year declines in North American DVD shipments in the first three quarters of 2006. The year was salvaged by a big fourth quarter, but the total increase in DVD sales was less than 2% -- the smallest ever. Meanwhile, plummeting VHS revenue caused total consumer spending on home video to drop in the U.S. for the second year in a row, the DEG said.
Against that gloomy backdrop, Adams Media Research is releasing a new study Wednesday (done in conjunction with Screen Digest) that predicts the studios' worldwide revenue will grow from $35 billion in 2006 to nearly $42 billion in 2010. Yes, domestic growth will be minimal in the next two years, Adams says, but growth overseas should offset that. Then, in 2009, significant revenue from high-definition discs will start kicking in, at least in the U.S. Revenue from films delivered via the Net will also grow rapidly in the U.S., Adams predicts, although it will still pale in comparison to ticket sales and discs. The bottom line: a compound annual growth rate of 4.3%.
That's not exactly barn-burning growth, and it may not stem the cost-cutting tide in Tinseltown. And while the sky may not be falling after all, Adams Media's report suggests that the studios can't afford to be too patient with high-def DVD, which has been plagued by the Blu-ray/HD DVD format war and a partial hack of its main copy-protection scheme, or online movies, whose appeal will be limited until there's an easy way to move them from the PC to the TV.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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