Sunday, April 03, 2005

DVD profit margins double that of VHS

DVD profit margins double that of VHS
If you've ever wondered how the DVD market has worked out for the movie studios, we can now give you an idea. Metro Goldwyn Mayer, better known as MGM, has put a number of what appear to be slide presentations in a publicly accessible portion of their web server. The reports cover a number of business-related matters, including the company's impressive cash flow, information about their library holdings, and more.

The most interesting information details the strength of the DVD market. Between 2002 and 2003, MGM saw a 40% boost in DVD shipments in North America, and 53% increase worldwide. One slide shows just how quickly DVD has caught on: it took only five years for 30 million DVD players to be sold, compared to circa 8 years for CD players, and 10 years for PCs to reach that volume. All of this translates into a booming market, which helps explains the considerable profit margins attached to DVDs. This slide indicates that net profit margins on DVD sales are 50-60%, while the lingering VHS business sees 20-30% net profit. To put this into plain English, your average $20 DVD apparent costs around $9 to produce, advertise, distribute, etc., leaving about $11 on top as pure profit. For an industry supposedly under dire threat from piracy, things look pretty rosy.

Daaaaamn! A 50% profit margin. You know the other major studios are seriously pissed at MGM. BTW, MGM seems to have shut off access to that portion of thier site. :) You just know that somebody is gettin' fired.


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