Warner Tries a New Tactic to Revive Its DVD Sales (original) (raw)

May 26, 2008

LOS ANGELES Retail’s love affair with the DVD is on the rocks and Warner Brothers Entertainment would like to patch things up.

Faced with a decline in DVD sales, Warner Brothers, part of Time Warner, is planning an unusual effort around its upcoming adaptation of the popular graphic novel “Watchmen.” Directed by Zack Snyder and set for a March 2009 release, the big-budget movie tells the story of a group of retired superheroes who are tied to a conspiracy that could change history.

The twist is that Mr. Snyder, known for turning the Spartan comic book series “300” into a global hit movie, is also directing a separate-but-related picture that Warner plans to distribute exclusively on DVD.

The second film, tentatively called “Tales of the Black Freighter,” follows a side “Watchmen” storyline about a shipwreck and will arrive in stores five days after the main movie rolls out in theaters. The DVD will also include a documentary-style film called “Under the Hood” that will delve into the characters’ backstories.

Warner, the No. 1 distributor of DVDs, bills the effort as a way to renew retail excitement for little silver discs now that the once-booming market has matured.

After years of blistering growth, domestic DVD sales fell 3.2 percent last year to $15.9 billion, according to Adams Media Research, the first annual drop in the medium’s history. While it is still a blockbuster business, any decline is cause for concern because DVD sales can account for as much as 70 percent of revenue for a new film. Results for the first quarter this year were mixed, with overall sales flat but notable softness for some new releases like Warner’s box office hit “I Am Legend.”

As a result and as consumer adoption of the next-generation Blu-ray discs lags some important retail partners like Wal-Mart Stores have been starting to rethink how much shelf space they devote to the category. Also up for discussion is to what degree retailers market new releases in circulars and with in-store promotions.

“There is a fear that if the DVD category declines over time that any well-run retailer is going to re-evaluate its commitment,” said Ron Sanders, the president of Warner Home Video. “We are offering retailers a meaningful opportunity to be involved with the theatrical event, to have a product that will generate foot traffic and sales.”

If that sounds like spin, to some degree it is. The movie studio would not be drafting one of its top filmmakers and sinking millions into “Tales of the Black Freighter” if it did not see a direct benefit for itself.

The immediate goal is for the parallel release to help start a potential new movie franchise. As television advertising becomes less effective because of declining TV viewership, movie studios need to reach a mass audience somehow, and having what amounts to ads sitting on store shelves is seen as a crucial antidote.

The effort is also a way for Warner to get more DVD bang for not many more bucks. The “Watchmen” film, Mr. Synder said, will probably generate at least three DVDs: “Tales of the Black Freighter,” followed about four months later by release of “Watchmen” itself, and then an “ultimate” edition in which the two are edited together into one megamovie.

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In the movie “Watchmen,” Jesse Reid reads “Tales of the Black Freighter,” which will appear as a DVD within days of the film.Credit...Clay Enos/Warner Brothers Pictures

“The überfans of this property are going to go crazy for that,” Mr. Snyder said.

Warner has another reason to make nice with retailers. The studio, under added scrutiny from Wall Street now that its corporate parent plans to spin off Time Warner Cable, has annoyed chains by leading a movement in Hollywood to simultaneously release titles on DVD and on video-on-demand services.

Retailers worry that DVD sales will suffer from the lack of exclusivity, but Warner which enjoys 60 percent profit margins for video on demand, compared to half that for physical DVD sales says there is no cannibalization. Warner said this month that it would distribute many new releases simultaneously to DVD and on-demand services.

Warner downplayed any friction from the growth of video on demand. “Our retail partners haven’t seen a dramatic impact one way or another on their business, so they’re allowing us to work on it,” said Mr. Sanders.

Retailers seem to be taking a wait-and-see approach to Warner’s olive branch. Wal-Mart, the nation’s biggest DVD retailer, with as much as 40 percent of sales, declined to comment. Target, which has historically accounted for about 15 percent of DVD sales, said, “We’re always looking for opportunities to generate excitement in our entertainment business.”

Tom Adams, the founder of Adams Media Research, predicted that retailers would embrace the “Tales of the Black Freighter” strategy. “They have every reason to try it,” he said. “It’s a fresh idea and it’s something that will be of value to movie fans.”

Warner knows releasing a related film on DVD at the same time it is trying to motivate people to buy tickets to “Watchmen” is not without risk. Consumers could become confused about which is which. And if they are disappointed in the quality of “Tales of the Black Freighter,” the plan might hurt sales of the “Watchmen” DVD.

“We feel a great responsibility to do this well for exactly these reasons,” said Diane Nelson, president of Warner Premiere, the division responsible for direct-to-DVD projects. “The movies that we do under this parallel content strategy have to be viable in their own right.” Although Ms. Nelson declined to reveal the budget for “Tales of the Black Freighter,” she said it was 30 percent to 50 percent higher than a typical direct-to-DVD effort.

Still, some concessions were made because of the budget, Mr. Snyder said. The original plan was to tell the “Black Freighter” story in a visual style similar to the mock-historical “300.” But an early budget was approaching $20 million and the studio balked, he said. Instead, the feature will be animated.

Mr. Snyder said he was eager to head a direct-to-DVD project, in part because it would allow him to use more material from the “Watchmen” graphic novel.

“I thought the ‘Black Freighter’ story would never see the light of day,” he said. “The main picture is nearing three hours long and I know I have a fight on my hands just with that.”

In addition, the studio plans a dozen 22- to 26-minute Webisodes to help make the complex story easier for the uninitiated to digest. Called “The Watchmen Motion Comic,” it will be a panel-by-panel slide show of the graphic novel narrated by an actor.

Although no decisions have been made, Mr. Snyder, who is overseeing the digital component but leaving the details to others, said the Webisodes would probably be combined for later release on you guessed it DVD.

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