Analyst, Studios See Opposite Sides of the Disc
July 9, 2008

LOS ANGELES – Anthony DiClemente may never eat lunch in this town again.

Convinced that digital downloads will have the same damaging effect on DVD sales that they've had on CDs, the Lehman Bros. analyst woke up Monday morning and downgraded the entire entertainment industry, contradicting predictions of both the studios and some fellow Wall Street analysts in the process and likely making him persona non grata on backlots from Culver City to Burbank.

In addition to casting a pall on the media industry in general, DiClemente this week downgraded Time Warner Inc., Walt Disney and News Corp., whose home-entertainment businesses accounted for about 47 cents out of every dollar U.S. customers spent renting or buying DVDs in the first quarter, according to data compiled by Video Business and Rentrak. He was only slightly more charitable to Paramount Home Entertainment parent Viacom, refraining from a downgrade but dropping its price target to $32 from $34.

DiClemente’s call flies in the face of studio predictions that Blu-ray’s February victory in the next-generation DVD format war will reverse the decline in DVD spending, which totaled about $24 billion last year, as high-definition disc sales are expected to more than triple to $1 billion this year. Overall, home-video spending, which flattened to about $5.6 billion in the first quarter, should rise gradually to $25.6 billion in 2012, the Entertainment Merchants Association said last month.

“Packaged media has a long life ahead,” said Ron Schwartz, Lionsgate’s executive VP and general manager of home entertainment, at the conference in Las Vegas last month. The No. 7 U.S. home-entertainment studio said that DVD sales would be almost unchanged by digital downloads, whose annual revenue will more than double to $3.55 billion by 2013.

Investors didn’t appear spooked by DiClemente’s dire predictions, though, as Disney and Time Warner shares were little changed by the downgrade while News Corp. shares actually rose slightly.

Posted by Danny King on July 9, 2008 | Comments (0)