DVD sales plummet, Blu-ray unable to save the day

The numbers for 2008 are in and they don't look good: DVD sales are now showing the first signs that they're about to go into free-fall, just like sales of CDs did a few years ago.

For the second year running, DVD sales have slipped. After hitting a high of $24.1 billion in 2006, the total sales volume hit $21.6 billion in 2008, an overall decline of about 10 percent off the 2006 high.

DVD's purported savior -- Blu-ray -- has been unable to rise to the rescue so far. Blu-ray (and leftover HD DVD) disc sales hit just $750 million last year, which doesn't nearly make up for the loss in sales of DVD media. Since Blu-ray discs are more expensive than DVDs, the overall unit sales decline is even more worrisome for Hollywood -- and some studios are seeing income plummet accordingly. For example, Fox operating income dropped 72 percent last year after seeing DVD sales fall just 15 percent.

Hits aren't going to save the day, either: Warner Bros. had the #1 selling DVD of 2008, The Dark Knight, but saw overall DVD sales drop 24 percent nonetheless. Disney -- running out of "classics from the vault" to reissue -- had a whopping 33 percent drop in DVD sales last year.

Naturally, the recession is being targeted as the culprit for all the bad news, but pundits say other factors are at play. One big issue? Former Fox and Disney executive Bill Mechanic says that the introduction of Blu-ray media has led studios to radically cut prices on their older DVDs as they attempt to position Blu-ray as a superior good. That plan may have backfired, instead driving consumers to snap up cheap DVDs instead. Says Mechanic, "It’s devalued the libraries. If you can buy Titanic for $4.99 versus $19.99 for a new, but lesser, movie on Blu-ray, consumers will say, 'Well, wait a minute…'"

To be sure, Blu-ray is growing -- up 250 percent since 2007 -- but it still represents less than 3.5 percent of the overall market. Analysts now wonder whether Blu-ray will be able to pick up steam fast enough -- or if the future has already been handed over to online downloading and streaming alternatives. With companies like Netflix rushing into streaming as quickly as possible, that certainly seems like a strong possibility.