Movie, TV Industry Downgraded Due To Digital Alternatives
Posted on: Tuesday, 8 July 2008, 12:35 CDT
Digital downloads of movies and TV shows may threaten the future of entertainment companies that rely on profits from DVD sales, according to a Lehman Brothers analyst.
"Shifts from physical to digital will disrupt the marginal economics of the TV and movie businesses, just as it did for music," said analyst Anthony DiClemente, who downgraded the entertainment industry’s five major companies on Monday.
The stocks of The Walt Disney Co., News Corp., CBS Corp., Time Warner Inc. and Viacom Inc. (VIAB) fell slightly more than the market by close, with CBS falling the most, by 4.7 percent, or 87 cents, to $17.73.
The average profit seen by companies from sales of DVDs and Blu-ray discs is $10.59, DiClemente said. The same movies and TV shows sell through Apple Inc.’s iTunes online video store for $9.29 - 12 percent less.
The additional online sources for renting digital movies pose a major threat to the entertainment industry as more young people choose to rent digital copies, he said. Profits from online rental sources range from $1.81 to $2.44 per movie rented, DiClemente added.
"Owning a collection of movies in this new digital world is really just not that cool for young adults in the target demographic that we look to for the future of the business," DiClemente said.
He said the proliferation of digital video recorders will also threaten TV advertising revenue as viewers increasingly skip ads.
Other experts agreed with DiClemente’s assertion, but did not foresee the same drastic consequences.
Concerns about declining ratings for broadcast TV have mostly hurt the shares of companies such as CBS, down more than 50 percent from its 12-month high of $35.75 last July, according to Cowen & Co. analyst Doug Creutz.
However, Creutz said the movie and TV industry is handling the conversion better than the music industry did by offering online alternatives for their content at a faster rate.
Music companies were "caught completely flat-footed by digital distribution," Creutz said.
"Studios have worked very hard to get in front of this thing," Creutz said.
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Source: redOrbit Staff & Wire Reports
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