Viacom’s Paramount Films business makes money through box office ticket sales, DVD sales, and TV licensing of its films. In recent years, the DVD business has been the most profitable part of the film industry with many films becoming profitable only after the film is released on DVD. We estimate that DVD’s constitute 11% of the $32.24 per share Trefis price for Viacom.
Historically, Viacom’s US DVD Pricing increased from $21 in 2005 to $22 in 2008. We currently estimate that pricing will continue to increase to $26 by the end of the forecast period due to on-going adoption of Blu-ray HD DVDs which are currently priced above regular DVDs.
However, adoption of Blu-ray DVD players has been slow to date with only 7% of US consumers owning a Blu-ray DVD player according to a recent poll conducted by Harris Interactive. Furthermore, DVD alternatives such as internet video (YouTube, Hulu) and video on-demand, continue to gain consumer attention. For example, Comcast’s video on-demand views (both paid and free) have increased from 1.4 billion in 2005 to 3.3 billion in 2008 and we expect this figure to reach 9 billion by the end of the Trefis forecast period. Netflix, the DVD rental company, has been investing heavily in on-demand delivery, both online and through digital boxes, in anticipation of the long-term shift away from DVDs.
Within Viacom’s content on our platform, you can see how the failure of Blu-ray to gain traction and continued growth of low-cost alternative distribution mediums could lead to a drop in US DVD Pricing, and how that would impact Viacom’s stock.
