Movies: Once spurned, video a key driver

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Home video, not theatrical films, has been the big driver for many entertainment companies. Now this entertainment segment-composed of VHS and DVD rentals and sales that topped $20 billion in 2001-is angling to be even bigger as ad budgets for home video grow and increased home video sales augment rentals.

Typically, an initial VHS/DVD release currently costs $2 million to $6 million in advertising and promotion, a fraction of the $22 million media outlay for the average wide-release theatrical movie. The reason for the lower VHS/DVD ratio to wide-screen release is the coattail-effect the video release inherits from the buzz and huge marketing buildup, from advertising to consumer product tie-ins, accompanying the initial theatrical release.

budgets are heading up

Things are changing, though. Overall, ad budgets are growing for home video. That's because the business is being pushed into doing more "sell-through"-revenue derived from sales of VHS/DVD vs. that of rentals. Sales, the domain of kids movies especially classic Walt Disney Co. films, are being extended to video releases of average-performing theatrical movies. Craig Kornblau, president of Universal Studios Home Video, says movies like last year's "Swordfish" from Warner Bros. wouldn't have received much ad support in the past, but now these movies are getting significant ad dollars against their VHS/DVD debut.

"Your average home video release is going up radically [in advertising]," he says. "The average rental for a $60 million movie at box office would have had an ad budget of $1 million." Now, for instance, "Swordfish," which pulled in $69.8 million at the box office last year, actually drew $6.1 million in home video advertising. "We used to only spend [home video advertising money] on movies that did at least $200 million" in U.S. box office, says Mr. Kornblau. He says Universal spent significantly to support the "Spy Games" video, a thriller that drew a modest $62.3 million at box office.

The biggest home-video ad budget for 2001 went to DreamWorks SKG's "Shrek." Taylor Nelson Sofres' CMR reports the studio spent $22.8 million, better than the average theatrical release, in pushing "Shrek." That film is somewhat a different story, though. It's an animated feature positioned as a major sell-through for the holiday season, and in fact, is being slotted by DreamWorks to be an evergreen property sold for years to come at holidays.

Given the blockbuster status of "Shrek," which drew some $267.7 million in U.S. box office receipts, VHS/DVD rental revenue at $51.2 million was less than 20% of the overall box office take. Typically in the debut year of a movie, video sales/rentals account for 40% to 50% of its overall theatrical box office revenue, with of course more video returns following in subsequent years. This isn't to say that studios still used their old ways in marketing home video from recently released movies. Take DreamWorks' "The Mexican."

"The Mexican," an offbeat caper movie starring Brad Pitt and Julia Roberts, was marketed for home video release almost purely as a rental, which, in this case, meant no reportable home-video ad revenue. Columbia TriStar's "The Wedding Planner," another middling theatrical released, was sold about the same way for home video, with a scant $47,000 spent on media.

Both "The Mexican" and "The Wedding Planner" did about $60 million in box office receipts, and pulled in about the same from VHS/DVD rental revenue.

One of the surprise home video hits of the year was Disney-owned Buena Vista Pictures' "O Brother, Where Art Thou?" According to CMR, the studio only spent $212,500 for the video release of the movie to pull in some $63.3 million in home video rentals in 2001.

On the other end of the spectrum, Paramount Pictures had a major summer 2001 hit in "Lara Croft: Tomb Raider" as it hit some $131.2 million in U.S. box office receipts. This didn't guarantee much success as a home video release, however, as it pulled in just $12.4 million in VHS/DVD rental revenue, less than 10% of its overall U.S. box office take.

Surprising `meet the parents'

The best performer for VHS/DVD revenue in 2001 was Universal Pictures' "Meet The Parents," posting $115.6 million, vs. the movie's total U.S. box office take of $161.5 million. Much of this business is attributed to the October 2000 release date of "Meet the Parents," giving the home video a full year in 2001 to garner revenue.

This year, "Harry Potter & the Sorcerer's Stone" is likely to make home video returns for other movies pale in comparison. Warner Bros. "Harry Potter," released the last week of May in VHS/DVD, sold nearly 10 million VHS/DVD copies in the first week, according to Video Business. Added to rentals of $13.2 million in that period, the "Harry Potter" home video achieved two-thirds of the movie's $317.6 million take to date in the first week.

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