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With scant notice, TV-DVD sales top $1B and begin to affect scheduling, financing 12/21/2003 07:00:00 PM Eastern

The second season of Dawson's Creek
hit the DVD shelves last week, and Kevin Dougherty was at a Manhattan Best Buy outlet to snag a copy of the four-disc set as a present for his sister, Margaret, who is about to turn 16. Then he bought one for himself. "I can't be letting her use my stuff, now, can I?" he explained.

The Dougherty home won't be the only one with TV shows on their DVD player this Christmas. Retail sales of TV shows should exceed $1 billion for the year, a number so big that it's beginning to affect how networks and studios look at programming.

Cartoon Family Guy, which had three so-so seasons on Fox, is the top-selling TV-based DVD for 2003.
Sales are so strong that Fox may revive the series. Home Box Office has recouped the entire cost of the early seasons of hit The Sopranos
from DVD sales alone.

Most TV executives love the DVD business, which one top analyst predicts will grow another 20% in 2004. "It's huge!" exclaimed Bob Wright, chairman of NBC, which expects to add Universal Television to its portfolio next year.

NBC Entertainment CEO Jeff Zucker concurred: "The numbers are already affecting how some shows are developed."

Other studio and Wall Street executives are more cautious. Everyone agrees that the segment will likely continue to balloon. But the TV-DVD market is too young to weigh very heavily at the development or greenlight stage, when a studio has to decide how much of a deficit it's willing to carry after a network pays initial license fees.

Theatrical movies are a different story: Estimated DVD sales are integral to Hollywood financing decisions because they have a long track record in the $14 billion home-video market.

Universal Television Group President David Goldhill said that the strong—or weak—prospect of DVD sales "has not affected a decision yet to go forward with a series." It's a different story with miniseries and TV movies, such as Taken, the 20-hour Sci Fi Channel limited-run project that Universal produced in partnership with executive producer Steven Spielberg. Those have a more proven track record.

Sopranos
Rules

Twentieth Century Fox Television Co-President Dana Walden, despite the studio's success with TV-DVD hits like The WB's Buffy the Vampire Slayer
and spinoff Angel
and Fox Broadcasting's 24, is still being careful. "It's very difficult to target what will work and what won't. I don't know that it's affecting the development process right now. It's a little premature."

That said, Walden acknowledged that DVD sales were weighted fairly heavily in the budgeting of Fox reality series The Simple Life, featuring celebutantes Paris Hilton and Nichole Ritchie in Arkansas. But she considers The Simple Life
a unique product.

Although a hit in the theaters pretty much guarantees a hit at Best Buy and Blockbuster Video, that's not true for TV shows. For example, episodes of the No. 1 show on television—CSI—were far from a DVD steamroller. Carmel, Calif.-based Adams Media Research estimates that the CBS series sold 133,000 units worth $5.6 million at retail through the end of September.

Audiences' seemingly endless appetite for Law & Order
seems plenty satiable in the DVD aisle. Season 1 sold about 200,000 units, or $10 million, through September.

Of course, those are retail dollars. Wholesale revenues are 45%-50% of that. And, after those are split with the studio's home-video unit and the show profit participants, the proceeds cover the cost of perhaps a couple of episodes.

Adams Media film analyst Jan Saxton says the top TV seller is the first season of The Sopranos, selling 840,000 copies at about $60 each for $50 million through September. She estimates that the first season of The Simpsons
has sold the most units, a huge 1.8 million, but at an average of $24 each for a total of $43 million.

Serials Sell

One pattern seems to be the success of serialized shows that viewers need to follow week to week to keep track of the storyline: 24, Buffy, Sopranos. (That helps defray the cost of making them, but, ultimately, serial shows still have a tough time making a profit because they usually stumble in syndication.)

But patterns aren't iron-clad. Hot sellers on the television-DVD market also include regular, non-serialized hits, like Friends
and The Osbournes. Fox is having success with young, male-skewing product, but Warner is succeeding with older- and more female-skewing shows.

"There's a handful of titles, most of them HBO series, that are doing a million units," said the head of one TV studio. "That doesn't necessarily tell me, as an executive, what can I count on."

Executives are certainly trying to learn. Sony Pictures TV's head of business development now attends the weekly staff meeting of the studio's home-video unit, according to Sony TV Programming/Production President Russ Krasnoff.

Of course, studios have been mining their library product for home-video sales for years. Kids product, like Nickelodeon shows, have been big sellers. And PBS has long offered VHS tapes or DVDs of fresh product literally as soon as a new episode airs, tagging the end of programs with direct-response promos.

Market Boomed

But, even as recently as three years ago, TV-DVD sales were minimal, just $200 million. This year, market leader Warner Bros. alone will far surpass that, with $500 million in sales, says Merrill Lynch media analyst Jessica Reif Cohen, largely on the strength of various HBO series. Twentieth Century Fox Television is second, with an estimated $275 million in sales.

That's a long way from making up for the dramatic decline in foreign sales. TV studio executives are wistful for the days when networks in England and Argentina and Japan gobbled up their product, sometimes signing lucrative output deals to take 100% of their series. But, given Asian and Latin financial shocks and an increasing preference for home-grown shows, foreign revenues have sunk from 40% of big TV studios' revenues to 20%-25%. Krasnoff wouldn't break down Sony's revenue sources but noted that "foreign sales are far more predictable than DVDs."

Despite its success in the video stores, HBO contends that DVD sales are a creative and financial afterthought. "It actually has no bearing," contends Carolyn Strauss, executive vice president of HBO Original Programming. "Where it really comes into play for us is more in an intangible way: promotion and awareness and other means of getting the word out there." The DVD releases of past seasons, she said, are sometimes tied to a new season's debut to piggyback promotion on one another.

In addition to the cost of the first seasons of The Sopranos
(before talent costs escalated), industry executives say, HBO has recouped the cost of the first seasons of Sex and the City
from DVDs ($66 million at retail through September, according to Adams Media). The $120 million miniseries Band of Brothers
has so far sold more than $85 million at $120 per boxed set.

But sales of acclaimed series Six Feet Under
have been thin. And don't look for big displays of flop K Street
at Wal-Mart.

Strauss wouldn't talk about individual series but noted that "you never know what's going to sell and what's not going to sell. It's not something you can plan."

One reason studios are so shy about precise numbers is talent. Show creators get a full, fat cut of home-video revenues. But actors, writers and their agents didn't necessarily foresee the TV-DVD boom. They certainly are aware of it now. "I won't talk about guild issues," said one senior TV studio executive. "And that's off the record."

 

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