Slipping discs

DVD CASES MIGHT BE THIN, but there are still only so many of them you can fit in the average family-room cabinet. And that’s shaping up to be a serious problem for Hollywood. It’s not that people have stopped buying DVDs, or even that sales are slumping.

But the format clearly isn’t growing as quickly as in years past, which is doubly worrisome for studios because they have become so dependent on it -- studios now make more money from DVD sales than from the box office. At a time of sluggish ticket sales, DVD revenues are more important than ever.

Hence the bleeding at DreamWorks Animation SKG. Its stock took a pounding earlier this week after the studio was forced to slash its earnings forecast for the second time in two months. The culprit: slower-than-expected sales of the “Shrek 2” and “Shark Tales” DVDs. Although “Shrek 2” is still a hot item, with more than 35 million units sold, it isn’t pulling down the bigger numbers of the first “Shrek” movie. Pixar Animation Studios, DreamWorks’ biggest rival, also fell short of its forecast because of unexpectedly slow DVD sales for “The Incredibles.”

One reason “Shrek 2” didn’t live up to expectations might be that the market is just too saturated. As the importance of DVDs to their bottom lines has risen, studios have been pumping out more and more titles. With all that product cramming store shelves, individual titles suffer. In addition, the DVD market is becoming more like the theatrical market; increased competition means shorter shelf lives for each new release. On top of that, the DVD market is simply maturing. Many people have already replaced their old video libraries with DVDs, and they’re running out of cabinet space for more. Until a new home entertainment technology comes along, studios can expect diminishing returns.

It turns out that just such a new technology is on the horizon, but it’s likely to prove a disappointment unless studios and electronics companies push harder to resolve their differences. Sony and Toshiba have developed machines that play newfangled DVDs capable of storing high-definition movies plus lots of extras that standard discs can’t hold. But they are two entirely different, incompatible formats, raising the specter of a repeat of the Betamax/VHS war of the 1970s and ‘80s.

Like the electronics manufacturers, the studios have split into opposing camps. So far, efforts to get them to join behind a single format have failed. That’s a mistake that will haunt them after this Christmas season, when the first high-definition disc players hit retail shelves and consumers wary of betting on the wrong format don’t buy either.