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The Economics of DVDs, Explained

Yesterday’s NYT Magazine had several features about the internationalization of commercial filmmaking. From Jon Gernter’s “Box Office in a Box,” about how DVD sales are changing Hollywood, comes this passage about the economics of DVDs:

“Let’s assume the wholesale price of a DVD is $14.95,” [industry consultant Bob] Alexander began, choosing that number because $14.95 is a typical amount that the studios charge a retail store for a new DVD. Of that $14.95, Alexander explained, about $1.50 covers manufacturing costs and perhaps another $2.50 goes to marketing. “So, roughly, there’s $4 of direct costs per DVD sold.”

That leaves the studios with about $11 from each DVD. The home-video division then has overhead and a royalty that might add up to $2.50.

“What’s left over, nearly $9 per disc, is cash flow,” Alexander said. “You can’t find it in the statements filed with the Securities and Exchange Commission. You can’t find it anywhere. It’s included with theatrical budgets. But this is what pays for all the movies that the studios make.

“Whatever the number, whether it’s slightly more or less than the $9, nobody has any question about where it’s going,” Alexander added. “It’s the home-video divisions that are paying the budget of the theatrical side.”