The Warner Archive and DVD Collecting in the New Home Video Market

Abstract

The Warner Archive and DVD Collecting in the New Home Video Market Bradley Schauer (bio) In November 2010 Metro-Goldwyn-Mayer, once known as the “Tiffany of Studios,” filed for Chapter 11 bankruptcy protection after failing to find a buyer willing to assume its nearly four-billion-dollar debt (Spector). While an investment consortium led by Sony Corporation had purchased the studio for $4.9 billion in 2004, six years later the highest bid received for MGM was $1.5 billion from Time Warner (Chakravorty and Adegoke). Rather than accept a lowball offer, MGM’s creditors voted for bankruptcy reorganization, which allowed them to retain ownership of the studio (Spector). MGM’s precipitous loss in value was tied to its chief asset: its 4,100-title film library, which includes all post-1986 MGM films as well as the films of United Artists and Orion Pictures, among other studios. MGM’s value as a producer and distributor was negligible; its only theatrical release in 2010 was the modestly budgeted comedy Hot Tub Time Machine. In contrast, its library held such lucrative properties as the James Bond franchise, itself worth as much as $1 billion, and the distribution rights to J. R. R. Tolkien’s The Hobbit (Schuker and Spector). However, by 2010 the value of the MGM library had depreciated due in large part to an industry-wide decline in home video revenue—a 14 percent drop since 2004 (White).1 At the time of the sale to the Sony consortium, MGM was earning over $500 million annually from its library; by 2009 this had plummeted to $228 million (Spector and Schuker, “MGM Drama”). Revenue from the sale of MGM DVDs dropped from $140 million in 2007 to only $30 million in 2010 (Epstein, “MGM Follies”). Sony’s purchase of MGM’s library helped its Blu-ray high-definition system defeat HD-DVD in a format war, but this was little consolation to the Wall Street investors who had gambled on the durability of the home video market and lost approximately a billion dollars in the deal (Epstein, “The MGM Follies”). The fate of MGM vividly illustrates the threat posed to the major studios by the current decline in home video revenue as consumers begin to abandon the purchase of physical discs in favor of a less expensive rental model. One of the most prominent strategies through which studios have attempted to retain the value of their libraries is through the online sale of “manufacture-on-demand” (MOD) discs of catalog titles. This distribution method, characterized by relatively low production costs and relatively high retail prices, allows studios to expedite the release of their large libraries onto DVD and to maximize the revenue generated from their less popular library product. MOD therefore represents a last-ditch effort for studios to monetize the more obscure corners of their libraries via a sell-through, physical distribution model before the predicted supplanting of that model by digital streaming, rental-based services. The MOD system is presently the primary method of retail for older (pre-1990) films that have not seen a previous home video release; at the time of writing, there are well over a thousand discs available for purchase online. Focusing on the Warner Archive, the first and largest of the studio MOD programs, this article offers a detailed look into the economics of MOD, a topic previously unexplored in academic media industry studies. After first establishing the industrial context for the rise of MOD programs, namely, the decline in the traditional DVD market since 2007, I position MOD as a key example of “Long Tail” retailing, in which a wide variety of commodities with narrow appeal are cheaply marketed and sold to niche audiences via the Internet. Yet while MOD exploits some of the efficiencies of digital convergence, it also retains the inefficiencies of physical distribution and compares unfavorably to conventional DVDs in terms of [End Page 35] consumer value. Based on the reduction of production costs and the elimination of inventory costs, the economic principles of MOD programs lead them to ignore many of the characteristics of the traditional DVD sell-through model that proved so lucrative for studios from...