DVD slump might weaken ‘Half-Blood Prince’s’ magic

Harry Potter, the teen wizard whose films have generated billions of dollars and become one of Hollywood’s biggest franchises, is known for battling the evil Lord Voldemort. Now he’s about to confront an even darker foe: A soft DVD market.

“Harry Potter and the Half-Blood Prince,” the sixth installment in the Warner Bros. film series, will be released July 15, and expectations are that it will be one of the year’s biggest blockbusters. The previous five “Potter” movies have generated $7.2 billion in worldwide box-office and DVD sales, reaping huge profits for the studio and Potter’s creator, author J.K. Rowling.

But the movie world that “Half-Blood Prince” will enter is markedly different from the one that its predecessor, “Harry Potter and the Order of the Phoenix,” faced when it was released in 2007. Over the last two years, DVD sales, which have long propped up the movie business, have sharply declined. The slump in the DVD market has undermined Hollywood’s business model and cast a shadow over what used to be the industry’s bright spot.

“There’s been a fairly substantial shrinkage in the overall DVD market since the last ‘Harry Potter’ film came out,” said Tom Adams, a home video industry analyst. According to Adams, DVD sales were down 9% in 2008 and he’s projecting that they will fall an additional 8% in 2009.

“That puts much more performance pressure on these big franchise titles to succeed,” he said.

Though the “Potter” movies have historically been huge DVD sellers, each successive sequel has sold far fewer units than its predecessor. Sales of the last release were off 15% in the first eight weeks compared with sales of the first film during the same time span. Even a small decline in DVD sales is a challenge for expensive movies because it raises the bar to profitability that much higher.

And the bar for Harry Potter is higher than ever. Warner Bros. spent $250 million to produce “Half-Blood Prince” and will invest $155 million to market and distribute the movie, according to people familiar with the situation.

Compared with other big-budget sequels, the incremental costs for each “Potter” film have been moderate, mostly because of salary increases for cast members and unfavorable foreign exchange rates. For example, when Warner Bros. began shooting “Half-Blood Prince” outside London in September 2007, the dollar was so weak against the British pound that it added roughly $15 million to the production cost.

Warner Bros. President Alan Horn said that the sixth “Potter” was worth taking a gamble on given all the money the franchise has generated for the studio and its corporate parent, Time Warner Inc.

“I think it’s as comfortable a risk as we can have,” Horn said.

Aside from box-office and DVD revenue, Warner Bros. reaps hundreds of millions of dollars from merchandise, video games and other sales including digital downloads on iTunes.

Kevin Tsujihara, president of Warner Bros. Home Entertainment Group, said profit margins were higher on distribution platforms such as video on demand and electronic sell-through because there were no manufacturing and shipping costs and the studio retained more revenue than it did from DVD rentals and sales.

“Even in a declining market, our profitability can go up,” said Tsujihara, who declined to discuss “Potter” specifics.

Horn said he didn’t expect the soft DVD market to hamper sales of “Half-Blood Prince” because it was a “unique property.” He believes that although budget-conscious consumers have become more selective about the DVDs they purchase, they have been demonstrating a desire to own big films like “Potter,” “Transformers,” “Twilight” and Warner Bros.’ “The Dark Knight,” which according to The-Numbers.com was 2008’s top DVD with more than 12.7 million units sold domestically.

Although Horn took a lot of flak from “Potter” fans when the studio pushed back the release of “Half-Blood Prince” to July from last November, the move may help boost DVD sales because the DVD will be released during the heavy gift-buying holiday season.

Because DVD and ancillary sales are driven by how well a film performs at the box office, Warner Bros. is focused on making sure that theaters will be filled with moviegoers.

As the “Potter” franchise ages, Horn says the biggest marketing challenge is assuring moviegoers that they’ll be seeing something new.

“When you’re doing the sixth version of a movie, how do you have fans not get tired of that?” the Warner Bros. president said.

Each of the “Potter” films follows a similar theme -- Harry uses his magical powers to seek the truth about the death of his parents and to fend off his evil nemesis Lord Voldemort -- but has a distinct look and story line.

“Half-Blood Prince,” which like the first three “Potter” films is rated PG, begins with Harry’s sixth year at Hogwarts School of Witchcraft and Wizardry. Dumbledore, the school headmaster, takes Harry on a dangerous mission to unlock the secret of Voldemort’s past so that the evil lord can be defeated. Their journey takes them outside the gates of Hogwarts into more real-world, or “muggle,” environments than the earlier films.

The upcoming “Potter” film also focuses more heavily on the adolescent angst, crushes, jealousies and first-love encounters of Harry and pals Ron and Hermione, all of whom are now in their late teens.

“To keep it fresh, we used all these wonderful moments in the movie -- the trials and tribulations of growing up, these new environments and the urgency of Harry trying to discover more information about who he is and what led to his parents’ death,” said Sue Kroll, Warner Bros. president of worldwide marketing.

To let audiences know that “Half-Blood Prince” is distinct, Kroll said, the marketing campaign was designed to feel “more contemporary, a little bit more in your face.”

The first movie trailer for “Half-Blood Prince,” which ran last August, is more audacious than trailers for previous “Potter” films. Rather than sell the full scope of the picture, it features a dark scene sequence about the back story of Voldemort as a young orphan named Tom Riddle.

“I can make bad things happen to people who are mean to me,” the young boy tells Dumbledore, who visits him at the orphanage.

For the first two “Potter” films, the majority of moviegoers were parents with children younger than 12. But with the next three installments, the audience aged along with the characters and the actors who played them. For the franchise’s fifth film, “Harry Potter and the Order of the Phoenix,” 66% of moviegoers were teens and adults.

In an effort to make “Half-Blood Prince” appealing to pre-teens and teens, Warner Bros. produced trailers and TV spots that play up the movie’s lighter, amorous aspects. In one scene, Ron drinks a love potion meant for Harry.

“I’m in love with her!” a drunk-sounding Ron tells Harry.

“All right, fine, you’re in love with her. Have you ever actually met her?” Harry asks, to which Ron replies, “No. Can you introduce me?”

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claudia.eller@latimes.com

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Harry Potter and the gargantuan numbers

The first five “Harry Potter” movies have been a giant generator of revenue and profit for Warner Bros. The following is a breakdown in global retail sales for movie tickets, DVDs, merchandise and video games.

Box office: $4.5 billion

DVD: $2.7 billion, or 211.4 million units

Merchandise: $7 billion

Video games: $1 billion, or more than 40 million units

UPCOMING

Movies: There are two more “Harry Potter” films in the franchise based on J.K. Rowling’s bestselling books: “Harry Potter and the Deathly Hallows: Part I,” which will hit theaters Nov. 19, 2010, and “Harry Potter and the Deathly Hallows: Part II,” which will reach theaters July 15, 2011.

Theme park: A 20-acre Harry Potter theme park attraction will open at Universal Orlando Resort in Florida in 2010.

Video game: A Lego game based on Harry’s first four years at Hogwarts School of Witchcraft and Wizardry is due in 2010.

Source: Warner Bros. and Times research