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Thursday, October 30, 2008

How Will the Recession Impact Hollywood?

The LA Times has a great piece exploring the ways that an economic downturn will affect television and movies. Essentially, consumers seem to be shifting consumption online (where they often find the same content for free, on sites like Hulu and YouTube, that they'd have to pay for via cable or Netflix). For media companies, profits are much smaller (at least today) from those online delivery methods. That means that media companies are earning digital dimes instead of analog dollars (as many folks, including NBC's Jeff Zucker, have put it.)

From Dawn Chmielewski's piece:

    The endless stream of free content, through legitimate services as well as pirate sites, appears to be shifting viewing habits more quickly than industry executives had anticipated -- or intended. That creates a dilemma for media companies because the Internet generates substantially lower revenue than established business models -- 30-second TV commercials and home video sales -- which have long supported the costly economics of TV shows and movies. That's not Hollywood's only problem.

    When Midori Connolly's family business in San Diego, which supplies audiovisual equipment for conferences, began to feel the economic slowdown this summer, she and her husband trimmed expenses.

    The monthly subscription to DVDs-via-mail service Netflix was the first to go. Now they rent movies for $1 a day from a kiosk at the supermarket. Next they saved the $10 to download George Strait's new "Troubadour" album on iTunes. Instead, they bought two tracks for 99 cents each. And they didn't rush out to spend $17 for the DVD of "Sex and the City." They checked out a free copy from the library.

    "We started finding alternatives that we didn't have to spend money on," said the 31-year-old mother of two. "I don't feel that we've lost any quality."

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  • I don't know that there is any proof that people are canceling their Netflix memberships because of the economy. People have made a big deal about Netflix's growth slowing, but over the last year, they've still grown their membership by approximately 20%. When you also consider that there was no difference in the churn percentage last quarter vs. a year ago, it also offers more proof that entertainment is better positioned in this environment. The real question mark in my mind is how many people will give up $50 a month cable bills when there are so many alternatives. So far it doesn't appear to be too many, but when you consider that you can get most of these channels for free, it seems the most vulnerable.

    By Blogger Davis Freeberg, at 11:27 AM  

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