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December 11, 2008

The Dark Knight Can Sell DVDs

The Dark Knight debuted strongly on DVD selling 3 million units on its first day. This should be good news for Time Warner although that is mostly because it was not a disappointment. The very top DVD titles continue to sell reasonably well. It is the group just beyond the top ten and the catalog that are suffering with non-top 10 new releases seeing as much as a 20% decline and the overall market down in the mid to upper single digits. Not good but individual companies with the very top sellers will probably not disappoint in 4Q.
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Also encouraging for TWX and Holly wood is that 25-30% of The Dark Knight sales may have been in blu-ray. Blu-ray gets a price premium that has huge marginal profitability. Maybe those $128-$199 blu-ray players sold on Black Friday are finally making the difference for the thus far disappointing uptake of the technology.

Or maybe not, at its analyst day on Thursday, Dreamworks Animation indicated that blu-ray was an immaterial number for Kung Fu Panda which will be a top 5 DVD title in 2008 and was just released at retail in early November.

Speaking of DWA, I'll have a longer summary on Monday but the analyst meeting went pretty well. The stock sold off a bit early in the meeting possibly related to a statement about 10 million Panda DVDs worldwide in for 4Q08. I think that is slightly light. As the meeting went on the company did a nice job of explaining its higher and more consistent earnings power and also offered an outlook that could lead to up EPS in 2009 vs. the current consensus for an 8% drop. The stock is out of short-term catalysts but the long-term story looks better than I expected. I am pondering the position I put on in early November which is at a modest loss.

Posted by Steve Birenberg at December 11, 2008 03:44 PM in TWX