PRESS ARTICLES

MOVIE DISTRIBUTORS SET RECORD - SELL $3.4 BILLION IN DVDS, VIDEOTAPES

RECENT DISAPPOINTMENTS CASTING A PALL

By RICK WESTHEAD BUSINESS REPORTER

Tuesday, July 26, 2005 - Toronto Star

Canadian movie-distribution companies such as Alliance Atlantis Communications Inc. and Lions Gate Entertainment Corp. generated record sales of DVDs and videotapes in 2003-04, even as the industry now faces the challenge of spurring the recently faltering business.

Statistics Canada said yesterday that Canadian film distributors and video wholesalers garnered a best-ever $3.4 billion worth of revenue from April 1, 2003, to March 31, 2004. That represented a jump of 4.9 per cent, or $160 million, from the previous year.

Alliance Atlantis and its peers generated a collective $1.8 billion from wholesaling videocassettes and DVDs in 2003-04, an increase of 13 per cent, or $200 million, from the previous year.

As a result of the SARS outbreak, which also hurt those in the tourism and airline sectors, Canadian movie distributors generated $382.7 million from movie-theatre operators in 2003-04, down from $462.6 million.

Distributors also suffered from a decline in revenue from pay TV ($105.6 million in 2003-04, down from $112.4 million) and conventional TV ($433.6 million, compared with $471.3 million a year earlier).

The Statistics Canada survey said distributors also faced lower licensing costs, such as rights and royalties, in 2003-04, paying $838.8 million, down from $965.7 million.

The survey's release comes as the industry struggled in recent months to overcome some disappointments.

This month, DreamWorks Animation SKG Inc., the filmmaker that has made such titles as Shrek and Shark Tale, was forced to scale back earnings guidance for the second quarter and the year because of retailers' lower than expected sales of the Shrek 2 DVD. The company has also scuttled plans for a secondary stock offering.

In June, filmmaker Pixar Animation Inc. warned it, too, would miss second-quarter earnings estimates because of higher than expected returns of The Incredibles DVD.

Consumers are now more discriminating with their purchases — you can now purchase everything from classic movies to old TV series to rock concerts on DVDs — and retailers such as Wal-Mart Stores Inc. are more aggressive in taking DVDs off the shelf when sales slow. That has led some Wall Street analysts to predict a slowdown in DVD-related revenue.

In a July 17 note to clients, a Goldman Sachs analyst predicted that United States DVD sales would increase next year by 1 to 2 per cent. He had previously forecast a gain of as much as 6 per cent