Dip in DVD rental revenue a worrisome signal for Hollywood

DVD rentals have gone from silver lining for Hollywood’s struggling home entertainment business to yet another rain cloud.

Digital Entertainment Group, a trade organization for the major movie studios, released its first-quarter data Thursday with the surprising news that U.S. DVD rental revenue fell 14% from a year ago. DVD sales and rentals account for about half the profit for a movie, so any decline portends financial worries.

During a very tough 2009 for home entertainment, consumers preferred to rent DVDs rather than purchase them. DVD rental revenue rose 4% for the year while sales dropped 13%. Both figures include high-definition Blu-ray discs.

The group linked the first-quarter decline in rental revenue to the closure of traditional stand-alone stores by Blockbuster Inc. and Movie Gallery Inc., which have been shrinking rapidly. Both companies struggled in 2009, when DVD mail subscription service Netflix and kiosk vendor Redbox accounted for nearly all the rise in rentals.


The first-quarter rental revenue drop this year indicates that the two latter companies’ brisk growth in 2009 may be slowing.

The trade group did not provide a total dollar figure for rental revenue in the first quarter.

DVD and Blu-ray sales revenue for the period declined 11% to a little more than $2.5 billion, dashing the hopes of many studios that comparisons to last year -- when the recession was in full force -- would show the trend of falling sales reversing, or at least easing.

The one major hit that launched on DVD in the first three months of the year was “The Twilight Saga: New Moon,” which sold 4 million units the weekend it debuted.


In its release, Digital Entertainment noted that the comparison to the first quarter of 2009 was difficult because Circuit City was selling large numbers of discs at a discount as part of its liquidation. Still, DVD and Blu-ray sales revenue was off only 9% in the first quarter of last year.

Blu-ray and digital remain bright spots. Sales of the high-definition discs were up 74% and rentals rose 36%. Digital distribution revenue, which included download-to-own and video-on-demand rentals, grew 27% to $617 million.

Neither was nearly enough, however, to make up for the 8% overall drop in sales and rentals to $4.8 billion for the quarter. If those numbers don’t improve over the next nine months, Hollywood could be looking at an even tougher year for home entertainment than 2009, when total revenue fell 5%.

“We are still facing a challenging environment but are very pleased to see positive indicators of stabilization in our overall business,” Warner Home Video President Ron Sanders, who heads Digital Entertainment Group, said in a statement.