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Wednesday, August 03, 2005

The DVD revolution

James Surowiecki writes in the New Yorker about Hollywood's impending reinvention:
In some ways, that reinvention is already under way. As Edward Jay Epstein explains in his new book about the economics of Hollywood, “The Big Picture,” in 1947 box-office receipts accounted for ninety-five per cent of the studios’ revenue; today, they account for less than a fifth. The key to this transformation is the DVD, one of the most lucrative innovations in Hollywood since the introduction of sound. Unlike videotapes, their predecessors, DVDs have remarkably high profit margins—they’re cheap to make, and people buy them rather than just renting them. The DVD, then, has changed the way the studios make money. But it has only started to change the movies they make.

Hollywood’s basic strategy is a familiar one: invest a huge amount of money in films that have the potential to be blockbusters, target teen-agers as a core audience, and spend enormous amounts of energy and money trying to get people to the theatre on the first weekend. This is a high-risk, high-reward strategy, and it can work, but it makes less sense in a world in which DVDs are the main source of revenue.
In the DVD Age, writes Surowiecki, Hollywood will "spend less and make more". Read the full piece, and also read Chris Anderson's outstanding piece in Wired last year that explains the phenomenon that is transforming the entertainment industry: The Long Tail.
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