Movie Studios Playing Up Potential of DVD Format

On Tuesday, Walt Disney Co. will reintroduce its classic “Snow White and the Seven Dwarfs” for the 10th time in 64 years. And this time--with its release on DVD--may be the biggest payday yet.

Disney hopes consumers will scoop up the DVD not only for the restored picture and sound of the 84-minute movie but also for the 8 hours of bonus material in the two-disc set.

On the DVD, which has a suggested price of $29.99, a talking “Magic Mirror” host guides viewers to various features, including a 40-minute documentary on the making of the 1937 movie, a karaoke-style “Heigh-Ho” sing-along, Dopey’s Wild Mine Ride game and an original rendition of “Some Day My Prince Will Come” by Barbra Streisand.

Disney’s most ambitious DVD to date comes amid an unprecedented wave of high-profile digital launches this quarter. Studios are seeking to cash in on the surging growth of the DVD market and give consumers more reason to switch from VHS to digital tapes.

Universal Studios, a unit of Vivendi Universal, will release three digital titles by year’s end--”The Mummy Returns,” “Jurassic Park III” and “Dr. Seuss’ How the Grinch Stole Christmas.” DreamWorks SKG plans a big splash for its DVD version of the summer hit “Shrek,” a two-disc set due out Nov. 2 with 11 hours of programming. And several classic movies, including Paramount Pictures’ “Godfather” trilogy, also will debut soon in digital format.

“DVD is really on a roll,” said Thomas K. Arnold, editor of Video Store Magazine.

Just a few years ago, studios such as Disney, Paramount and News Corp.-owned 20th Century Fox shunned DVD, fearing piracy and the prospect that the technology would fizzle just as Betamax had done. Now they are trying to outdo each other with increasingly elaborate discs that represent a quantum leap from the bare-bones, add-on look of earlier digital experiments.

In the newest souped-up DVDs, there are movie outtakes, directors’ commentaries, behind-the-scenes looks at the making of the movies, explanations of the special effects--even DVD-ROM games aimed at broadening the target market of families and children.

“Shrek,” for example, includes a DVD-ROM program that enables viewers to voice the lines of their favorite Shrek characters. The game runs only on a computer.

“From a consumer standpoint, it’s a complete experience in the way you see a movie,” said Ken Graffeo, senior vice president of sales and marketing for Universal Studios Home Video. “Consumers want to see more and they want to see behind the scenes.”

Fast-Growing Market Offering Higher Profit

Digital videos are becoming key money makers for studios at a time when they face a slowdown in home video sales, tighter margins for theatrical releases and a softening advertising market, which has been exacerbated by the Sept. 11 terrorist attacks.

The number of DVD units shipped to retailers jumped from 5.5 million in 1997 to 182 million in 2000. In the first half of 2001, 150 million shipments were made, up from 60 million during the same period in 2000, according to DVD Entertainment Group, a Los Angeles-based trade association. The average retail price of a DVD is $23.

DVD, advocates note, is the fastest-growing consumer electronics product. In four years, more than 20 million households have purchased DVD players. It took videocassette recorders three times as long to reach the same milestone.

The number is expected to exceed 175 million households by 2004, according to the Consumer Electronics Manufacturing Assn.

The soaring demand for DVD players has spawned a multibillion-dollar industry in Southern California, where many DVD manufacturers are scrambling to keep pace with studios’ orders for the holiday season.

“It’s been a boost . . . for the studios and could become even more so, especially if theatrical budgets are hurt because of the events of Sept. 11,” said Ralph Tribbey, editor of the DVD Release Report. “The DVD business could be the lifeline for some of the studios.”

The appeal is simple: DVDs provide clearer and sharper pictures than VHS tapes, they’re cheaper to make and more profitable for studios (studios net as much as 40% more on the sale of a DVD than with a VHS tape), and consumers are snapping them up at record rates.

Sales of DVD players catapulted early last year, when prices for DVD players began to dip below the $200 mark.

Digital Format Gives New Life to Old Releases

The 5-inch DVD--which stands for digital versatile (or video) disc--is related to the CD, though it has much more capacity and can store music, games, movies and text.

Developed in the mid-1990s by Warner Bros., Sony Corp. and various other international firms, DVDs met with a tepid response when they were introduced in 1997.

“We had to make sure this wasn’t another laserdisc,” said Tom Staggs, Disney’s chief financial officer, referring to a 1990s movie format that flopped.

Improved copyright protections and a string of commercial successes, however, persuaded studios to embrace DVD technology.

DVD releases were big revenue drivers for the studios in 2000, led by DreamWorks/Universal’s “Gladiator” ($63.1 million in sales), Fox’s “X-Men” ($51 million), Disney’s “The Sixth Sense” ($38 million) and Warner Bros.’ “The Matrix” ($34.2 million).

“DVD is the driver for the tremendous growth that we’ve seen in the home-video category,” said Mark Horak, senior vice president of marketing for Warner Home Video, which has upcoming digital releases of “Swordfish” and “The Matrix Revisited.”

“We think the extras that are being put on the DVDs are encouraging consumers to build extensive home libraries,” Horak said.

Disney, one of the last studios to dive into DVD, is now among its biggest fans, recognizing the medium could reinvigorate its vast library of titles.

“DVD has been a key driver of profits,” said Bob Chapek, Disney’s home-video chief. “It’s a huge growth potential right now.”

The “Snow White” DVD, which goes well beyond Disney’s earlier digital releases, is part of a broader strategy by Disney to re-energize its core home-video business, which began to slump in the late 1990s after a decade of hits such as “The Lion King” and “Beauty and the Beast.”

To keep its movies and characters from being overexposed, Disney’s pattern had been to reintroduce most of its animated titles every seven years.

But to make better use of its classic titles, Disney took a new approach last year: making 26 animated titles permanently available for sale on video and DVD over two years while creating a separate “platinum” collection of 10 of what the company believes are the most-desired titles. Those would be reintroduced once a year over the next 10 years, beginning with “Snow White.”

Disney has made more than $1 billion from “Snow White,” releasing the movie eight times in theaters and twice in limited-edition videotapes.

With the newest version, Disney wants to “really engage you in an immersive experience” and broaden the appeal of DVDs to children and families, said Chris Carey, senior vice president of DVD productions for Walt Disney Pictures & Television.

Making the Most of the Technology

Jordan Rohan, a media and entertainment analyst with Wit SoundView, expects the new “Snow White” release to generate $350 million in revenue for Disney.

Universal is equally bullish about DVD technology, spending about $100 million with promotional partners to market its three upcoming titles. To help promote its Nov. 20 release of “Grinch,” the company is teaming up with Microsoft Corp.’s MSN to create a Whoville Web site.

“It’s tremendously important to us as a studio,” Graffeo said. “What we’re doing is at the script stage we’re beginning to take a look at what the opportunities are for when the DVD comes out.”

The DVD for “The Mummy Returns,” which debuted Tuesday, includes a DVD-ROM Mummy Game, a lesson on Egyptology and an explication of special effects.

“I love the fact that you get to see how we made all the special effects,” said Stephen Sommers, writer-director of “The Mummy” and “The Mummy Returns.” “It gets people to watch the movie again.” The digital titles themselves can be important marketing vehicles for upcoming films. “The Mummy Returns,” for example, has an exclusive trailer for the spring 2002 release of “Scorpion King,” starring professional wrestler and actor The Rock.

Studios Work to Keep Viewers of VHS Tapes

A key challenge for the studios, however, is striking the right balance between expanding DVD and not alienating the vast majority of customers who buy only videos.

“DVD is hot and sexy and we want to make ‘Shrek’ a must-see DVD, so we’re very bullish on it,” said Kelley Avery, worldwide head of home-video entertainment for DreamWorks. “At the same time, we want to make sure we don’t walk away from the VHS customer.”

That’s why DreamWorks added a three-minute extended ending to both the VHS and DVD versions of the hit summer movie, Avery said.

It’s also unclear whether the events of Sept. 11 could hurt sales of DVDs and players.

“The downside is that the bubble could burst,” Arnold said. But most analysts don’t believe the sour economy will damp the business.

“What we’re seeing is a new trend and that is that American consumers are cocooning in their homes,” said Amy Jo Donner, executive director of the DVD Entertainment Group. “We’ve seen a significant spike in home-video [including DVD] sales and rentals.”