DVDs are Dead… And This Media Retailer May Not Be Far Behind
by Alexander Moschina, Investment U Research
Thursday, February 24, 2011
Back in 2000, Time Magazine asked, “Will everything be digital?”
“Digital,” as described by the author, meant “no movies or magazines or pieces of music… just 1s and 0s…”
Ten years later, the answer is pretty clear…
Digital entertainment sales are steadily chipping away at sales of physical media. And according to Don Reisinger of CNET.com, revenue from streaming entertainment will grow 174% over the next three years – from $2.3 billion to $6.3 billion.
This is devastating news for stores that sell physical copies of movies and music. And for one New York City-based retailer, in particular, which counts on DVDs, Blu-ray discs and CDs for a whopping 80% of its business…
Trans World’s Mistake: Banking on Blu-Ray
Trans World Entertainment (Nasdaq: TWMC) operates F.Y.E. and Suncoast stores in shopping malls. The company currently derives most of its revenue from DVD and Blu-ray sales and CEO Bob Higgins recently said that he expects Blu-ray to continue to drive profits in 2011.
This may be true. But the trouble is that Blu-ray sales are also about to reach their peak. And by 2014, combined sales of DVDs and Blu-ray are expected to fall to a collective $4.6 billion.
According to research firm IDC’s Danielle Levitas, “The Blu-ray market… has challenges ahead given increasing use of streamed video services…”
And it gets worse for Trans World. Because digital music downloads are rising, too…
Digital Destruction
Last year, downloads accounted for 29% of the music industry’s total revenue – up from 25% in 2009.
In fact, digital music sales have grown so much that Sony (NYSE: SNE) recently announced that it’s shutting down its largest CD-manufacturing facility. That’s big news… but hardly surprising, given that it said CD sales sank by 18% between 2008 and 2009.
What’s more, the trend shows no signs of slowing. And while unfortunate for Trans World – for whom CD sales account for 36% of revenue – the writing has been on the wall for nearly a decade, tracing back to when Apple (Nasdaq: AAPL) first released the iPod in 2001.
The growth of digital media is simply undeniable. And it’s kicking Trans World’s business to the curb…
Trans World Holiday Sales Plummet as Competitors Post Five-Year Highs
On January 31, Trans World reported that its 2010 holiday sales had slumped by 22% from the prior year.
Meanwhile, according to the International Council of Shopping Centers, other retailers experienced a sales rise, with overall sales up 4% to the highest levels since 2006.
Bottom line: Trans World is in big trouble. Its products are fast becoming irrelevant in the digital age. And over the coming years, unless it finds some way to get with the times, it will be left in the dust.
Good investing,
Alexander Moschina
Any investment contains risk. Please see our disclaimer.
One Response to “DVDs are Dead… And This Media Retailer May Not Be Far Behind”
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The fact is that digital isn’t making up for physical media losses – it never has for music and I don’t expect it to for movies either. You say downloads accounting for 29% of music revenue, up from 25% last year heralds the end for CDs, yet as you acknowledge music downloads have been around for a decade. That’s not rapid adoption, it’s glacial.
Then you have to factor in contraction in the music market – that 29% now is worth less than 20% of 2000′s market.
It took CD around 15 years to completely eradicate audio cassette. More than 10 years since the advent of digital distribution, the vast majority of music is still sold on CD.
The movie market is a different animal, but I suspect it’ll pan out similarly to music – contraction of the market as a whole, with digital failing to make up the losses or displace physical media in the short/mid term.
The DEG has digital growth at around 20% last year to $2.5 billion from $2.1 billion in 2009. Most of that revenue is from digital VOD delivered by cable/satellite. Internet sales are up 19% to approximately $750 million.
That’s very low growth and revenue for a mature industry, and here’s the big problem when it comes to trumpeting the collapse of physical media – over the same period Blu-Ray sales have shown considerably higher growth and revenue.
Physical media as a whole is falling, but digital isn’t taking up the slack, and one part of physical is growing faster.
Announcements of the death of physical media are very premature.
Have fun!
Milt R. Smith
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