Thursday, December 3, 2009

DVD Sales Trends

In 2009 Hollywood movie executives were pondering the recent decline in DVD sales. In an excellent article, the factors at play in the DVD industry are discussed along with competing views as how studio executives are reacting to the decline in DVD sales.

Given the decline in demand (i.e. a shift to the left of the DVD demand curve), producers (i.e. movie studio production divisions) are trying to retain profits by reducing the number of movies they produce (finance) and also by reducing their costs of making movies they do choose to produce. Each of these actions has a positive impact on the profitability of the movies and also on DVD's. The decline in the supply of movie produced should shore up DVD prices and the cost-cutting on production should shore up the per movie profits. Thus as overall movie profits will likely decrease due to the decline in DVD consumer demand, the per movie profit is not likely to suffer as much compared to movie studios taking no action at all.

Hence, we see a clear example of how a decline in consumer demand for DVD's is driving movie studio executives decisions in movie production decisions (i.e. quantity of movies studios supply) and how declines in consumer demand affects movie studios movie budgets (i.e. costs).

No comments: