Dissecting the '05 slump

Global biz hurt by home video, film

It's official. Home video and theatrical sales were the main culprits for the industry's 2005 slump.

The worldwide video sector declined $844 million, the biggest dollar slide in 2005, while the worldwide theatrical market, down 10%, represented the largest percentage drop. Worldwide TV revenue fell 5%, and pay TV dropped 3%.

These figures are cited in a confidential business summary sent by the MPA to executives of the six major studios. According to the summary, worldwide all-media revenue — combined income from theatrical, television, home video and pay TV — tapered off 5% during the Year of the Slump and brought an end to a steady growth period that went from $31.6 billion in 2001 to a record $44.8 billion in 2004. Last year's all-media revenue dipped to $42.5 billion.

Many believe that the MPA's worldwide market analysis played a part in triggering wholesale retrenchments in personnel and production this year at many divisions of the major studios. Coincidentally, a copy of the 2005 business summary was obtained by The Hollywood Reporter just as the MPAA's foreign watchdog told international distribution honchos that the overseas theatrical market was making a significant comeback this year; the January-September boxoffice at offshore theaters already is ahead of the 2005 mark by 12%, from $5.7 billion to $6.4 billion (HR 10/17).

The 2005 business summary, part of a voluminous annual survey, discloses that worldwide home video represents 60% of total feature film revenue, which fell 5% to $33.7 billion in 2005. It is noted that a 4% growth in DVD could not compensate for the 75% drop in VHS sales.

Foreign theatrical take, which soared 9% in 2004's record year, skidded 17% in 2005, returning top market share to the U.S., at 52% compared with international's 48%. The $6.7 billion in 2005 set worldwide theatrical revenue back to its 2002 level, the report found.

The report covers the top 25 international markets, which represent 43% of total worldwide all-media revenue. The U.K. ranked as the No. 1 importer of U.S. product, and Portugal rounded out the list in the 25th spot.

Of the total $42.5 million worldwide all-media revenue in 2005, the U.S. accounted for $24.1 million (down from $25.5 million in '04), with the total international market contributing $18.4 billion (off from $19.4 billion in '04).

The U.K. was the No. 1 all-media buyer, paying out $3.7 billion in 2005, compared with $3.9 billion in '04, followed by Germany, which rose to $1.9 billion after 2004's $1.8 billion; France, $1.8 billion compared with $1.9 billion in 2004; Japan, $1.8 billion vs. 2004's $2.1 billion; and Canada, which rose from $1.57 billion to $1.67 billion.

Data for executive eyes only mentions a $500 million all-media decline in Europe last year, primarily driven by a 20% tumble in the theatrical sector; an 11% downturn in the Asia Pacific region; a 27% drop in TV revenue and 18% in theatrical for the Middle East and Africa; and a relatively slight 3% dip in Latin America, with a 3% hike in home video unable to offset drops of 19% for pay TV and 4% for theatrical.

Turning to individual media results, the MPA summary notes that TV revenue for Europe slid a modest 3% thanks to a 30% growth in Germany; Asia/Pacific was down 4%; Latin America was flat despite slight growth in Brazil and Mexico; and Middle East/Africa plunged 27%, mainly attributed to double-digit declines in South Africa (20%), Israel (46%) and Turkey (47%). At the same time, television revenue in North America fell 6% from 2004 despite an 11% increase in Canada.

On the theatrical side, Europe fell 20% in 2005, Asia/Pacific was down 22%, Latin America slid 4% and Middle East/Africa declined 19%.

Worldwide home video was down 4% in 2005, with a 4% climb in DVD unable to offset a 75% loss in VHS sales. Home video slipped 5% in Europe in 2005; Asia/Pacific was down 7%, mainly because of a 12% loss in Japan; Latin America increased 3% compared with 2004 thanks to a 26% rise in DVD revenue; and DVD drove a 12% increase for Middle East/Africa.

Worldwide pay TV returns ebbed 3% in 2005 in the face of a 6% jump in the foreign market, where pay-per-view grew 26% but is still considered a small share (15%) of the overseas market. European pay TV grew 14% in 2005, mainly because of the contributions of the U.K. (up 3%), France (up 11%) and Spain (up 25%).

Not all of 2005 was bleak. Despite the overall decline in all-media sales, two countries showed growth as U.S. customers: Germany, up 6% in 2005, and Canada, up 8%. Canada grew 3% in theatrical revenue and South Korea went up 13% in 2005, the most of any top 25 market, according to the MPA. Three of the top five theatrical markets in Latin America advanced in 2005 despite the 4% overall decline propelled by the smaller markets.
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