Disney sells 4 million movies and over 40 million videos on iTunes -- amounts to nothing

Disney announced that it sold 4 million movies and between 40 to 50 million videos on iTunes since 2006. That's huge, right? Not really. In fact, analysts expect those numbers to amount to just $123 million ($1.44 earned per video, $14.50 per movie); pennies in comparison to Disney's $35 billion in annual sales. In fact, it's roughly 10% of the $1 billion in digital revenue Disney hopes to achieve this year. A clear reminder, dear readers, of just how Type-A we really are. The typical Wal-mart noob still doesn't download their video and music -- hell, they can't even figure out Linux.

[farfisa @ Mar 13th 2008 10:38AM]

Think Grandma's going to give an iTunes gift certificate to a 5-year old for Christmas?

[Aguiluz @ Mar 13th 2008 10:51AM]

$123 Million is nothing, eh? Better than "nothing at all" I suppose.

[Lars @ Mar 13th 2008 2:39PM]

It's a good chunk of change for sure, but look at how much they get off disc sales. It takes pennies to create a disc with packing and all when it's mass produced. They have to pay some licensing fees, but beyond that they get a huge markup. They ream their customers that join the Disney Movie club too. One would think if the middle-man (retail) is skipped then the savings would be passed on to the consumer. Not so, they in fact charge higher prices to Disney Movie club members than if they were to walk into a store and buy the same thing. When sold in retail, the prices have to be competitive (still overpriced), and when sold digitally they have to conform to the distributor's pricing scheme. Long story short, they don't loose as much money on distribution/manufacturing of physical media as you think.

Of course, digital distribution is even more of a rip-off to me --even though it's cheaper-- because of the DRM.

Oh, and please don't post-jack.

[Aguiluz @ Mar 13th 2008 10:31PM]

@Lars:
"Don't post-jack"

Apparently, I aimed my comment to attach at OneLove just below. But the commenting system deflected my shot and attached it to the wrong one. *bleep!* It's so Annoying!

[Lars @ Mar 24th 2008 5:13PM]

Ah, my mistake. All is forgiven.

Cursed blogsmith, we love to hate thee.

[OneLove @ Mar 13th 2008 10:40AM]

My mother taught me that every penny counts.

[Anthony @ Mar 13th 2008 1:17PM]

Your mother's wrong. In fact, the treasury keeps trying to get rid of the penny.

Furthermore, with all the development & other related costs Disney might actually be losing money on the iTunes project at this point.

[yoshi @ Mar 13th 2008 1:35PM]

Okay, I give up. How, exactly, is Disney losing money on iTunes? They have zero overhead. All they do is collect a check from Apple. Now, you might make the argument that they aren't making as much money as they could by dumping iTunes and only selling via DVD. But, if you did that, you would still be wrong.

While iTunes undoubtedly takes away from a few DVD sales, you have to look at a number of other factors. First, again, is the zero overhead. There is no per unit production cost. Second, the majority of Disney's sales for DVDs come through retail outlets. Figure that the wholesale price is about 50% - or less - than the retail price. That, minus overhead, is roughly how much Disney makes per DVD.

There's another factor than people often ignore with regard to digital sales via iTunes. I am really surprised that the media executives are so hostile to iTunes. Because iTunes is so proprietary, that means that if someone were to purchase a different media player that was not compatible with their content, they would be out of luck and forced to purchase another copy - something the media executives just LOVE for consumers to be forced to do.

So, while Disney may lose a few sales in the short term, I believe they'll do nothing but benefit in the long term.

[EMB @ Mar 13th 2008 10:41AM]

hey mathwiz.

It's just above 10% not less.

[superfresh @ Mar 13th 2008 11:07AM]

That's what happens when you wholesale copy a post from another site, mistakes and all. They've already corrected their post. Engadget is probably just waiting to copy the correction.

And another thing, I don't find this news to be small potatoes, considereing the limited places most people have to view these videos (small iPod screens, computer monitors, even fewer AppleTVs). An iPod touch (or even a nano) wouldn't be the first gift I would think to buy a child in Disney's target market. I bought my first iPod last month and am still exploring it.

Of course most people buy hard copies of music and movies, and rightfully so, considering the costs involved in buying a computer and a DAP even before you download your first overpriced DRMed track, which is why most digital content on peoples PMPs is stolen, not purchased. This post sucks.

[Bender Bending Rodriguez @ Mar 13th 2008 11:46AM]

Not only is it just above 10% for digital sales, its more when you consider the lower estimates for 2006 and 2007 and that the $123M is above what it would have made without the iTS and is more profitable per sale than manufacturing, distributing and selling DVDs to brick and mortar retail outlets. 2008 will prove to be even more financially beneficial to Disney's bottom line.

[Realtosh @ Mar 13th 2008 4:03PM]

$123m is about 10% of FY07 total annual cashflow $1,259b, about 18% of FY06 total annual cashflow $688m, and much more than the negative cashflow of the most recent quarter Dec07 -$256m. I don't know what $123m means to you, but it sure means a lot to Disney's bottom line.

Remember that iTunes revenue for Disney is almost pure profit. Disney already paid the production costs previously. Apple is picking up the cost of running the digital store, so all the money that Apple hands Disney falls almost entirely to the bottom line. That kind of revenue helps any company, even a large company like Disney.

Don't be distracted by the revenue numbers. For example if a hit movie makes $123m gross revenue for Disney, but production and marketing costs reach $95m that only leaves $28m left in gross profit, which doesn't all fall to the bottom line because Disney has other investment and financing expenses.

So in light of the reality that is Disney today, that $123m in extra free cash is quite nice indeed.

[darkstar @ Mar 13th 2008 10:42AM]

its kinda funny that most people on engadget thinks downloadable movies/contents/whatever is the future.
it will be, but not any time soon.
even if i want to get higher speed, i cant. the max i can get in my area now is 700kbps. no kidding!!

[gb @ Mar 13th 2008 10:52AM]

If it IS the future, as you say, then it is the future at this moment. If something WILL be the future, then it is also currently the "future." Once it is the norm, it won't be the "future" anymore, it will be the "present." Or something like that.

[OneLove @ Mar 13th 2008 12:29PM]

@darkstar ..."it will be, but not any time soon" is in the FUTURE! ...also I get 6mb constant speed with con-cast. :) I once had 27mb constant for a month! (speed boost got stuck or something after they bought the local provider and e-switch me). I stupidly turned off my modem when I went on vacation and went turned it back on it was only 6mb. I WAS IN HEAVEN for a month!! sigh. ;( i have pics to prove it.

[timmy @ Mar 13th 2008 10:42AM]

So, $123 million is less than 10% of $1 billion? That's using accounting math, right?

[Jacob @ Mar 13th 2008 10:43AM]

How does $123 million amount to nothing? This is free revenue for Disney if you ask me. They don't take away sales from their other mediums and it takes little upfront costs and no maintenance costs to keep this storefront up and running. I'm sure Disney is ecstatic about those numbers. Engadget excels at witty comments about gadgets but when reporting objective views on business and financial matters, they try too hard.

[A-Deca @ Mar 13th 2008 10:43AM]

Not to be picky, but $123 Million is exacly 12.3% of $1 Billion, not "less than 10%".

[Jacob @ Mar 13th 2008 10:46AM]

Obviously, Engadget editors were Arts majors not Science majors.

[Captain Crunkled @ Mar 13th 2008 10:46AM]

"...typical Wal-Mart noob..."

Not offensive at all.

[web2.oh @ Mar 13th 2008 11:54AM]

The amount of smug in this news post is incredible.

[mrhammerstein @ Mar 13th 2008 1:12PM]

sorry engadget if i prefer to actually own a dvd to watch on any tv i own or let someone borrow the movie. i guess i could spend a couple hundred dollars on an apple tv or mac mini to set up a home theater system to watch my $15 movie download.

that seems wise to me. spend a couple hundred to watch a lower quality movie download. until movie downloads are $5, i'll pass. why do they cost the same as dvd's anyway. where's the packaging?

[aeo @ Mar 13th 2008 10:48AM]

No no no, you're all looking at this wrong. The point is that _Disney_ thinks it amounts to nothing. Soooo... we can pirate all their stuff and it won't matter to them. See? Isn't it fun to rationalize stuff?

[mymaclife @ Mar 13th 2008 10:48AM]

If you think it's not worth that much then write me a cheque now - in fact wire me the money.

[Zal @ Mar 13th 2008 10:52AM]

Yeah, but $100 million here...$100 million there, and pretty soon you're talking about real money.

[jim @ Mar 13th 2008 10:59AM]

I am fairly sure that if Disney's profit dropped 10% (even though it's more than that) they would be pretty pissed.

[retro77 @ Mar 13th 2008 11:03AM]

lol @ Walmart Noob!

[madgamer @ Mar 13th 2008 11:10AM]

You guys are missing the point, the $123 million they made was roughly a quarter of a single percent of their annual revenue, hence why it can be deemed irrelevant. As in downloads accounted for ~0.25% of their revenue.

[brandon @ Mar 13th 2008 11:11AM]

I think you guys are all forgetting the DRM thing. I sure am not going to buy anything from itunes until I can use it in other software and it doesn't have restricted use. Plus, physical media is going to last longer.

[thatkidmattt @ Mar 13th 2008 11:18AM]

Hey, Mr. "I Am The Warrior For Media Freedom", we're talking about Disney here; you know - 101 Dalmatians, The Little Mermaid. I can guarantee that when Mommy and Daddy buy little Elizabeth "Beauty and the Beast" they have no fucking idea what you are talking about.

[Anthony @ Mar 13th 2008 1:21PM]

Absolutely. & some of us want foreign films of films with captions/subtitles. Where are those Mr Jobs?!

[Mike @ Mar 13th 2008 11:16AM]

This is why Blu-ray is here to stay at least for 5-6 years.

[Whiplash @ Mar 13th 2008 11:16AM]

Online video really won't take off until Apple owns the cable box. Apple TV is cool but it's ANOTHER box to hook up and it's pricey just for watching movies. I saw a story today about Apple patenting a DVR type device. If they can get ComCast or Dish to carry an Apple branded tuner... then movies from iTunes will really take off.

[Hobo @ Mar 13th 2008 11:17AM]

I disagree. I think five years ago few would have predicted that 10% of Disney's profit would come from sales on the iTunes store. Have some perspective! I do, I'm a Hobo.

[thatkidmattt @ Mar 13th 2008 11:20AM]

But it isn't 10% of their profit... It's 10% of what they hope to make by selling things online. As someone said earlier is something like .25% of their revenue

[ReggieXuk @ Mar 13th 2008 11:29AM]

I love to be reminded of how poor i am.

[oiya @ Mar 13th 2008 11:31AM]

Even though it may be nothing, its better than nothing. Not only that in an era when people expect free music and videos on the web this is nothing short of a miracle.

[Valgas @ Mar 13th 2008 11:37AM]

Welllll, guess they should go ahead and let us download them for free eh? Yep.

[Javaflash @ Mar 13th 2008 11:41AM]

People who buy DVDs aren't watching the movie for the first time. They buy to collect. They want easy access, cheap storage, good (subjective) yet consistent quality. On such ground, Apple TV, for the moment, pales in comparison with regular DVDs. It should come with no surprise that sales are disappointing.

Rental will be a bigger part of equation in digital video distribution. The price on iTunes needs to drop though. $1 for 24 hours (RedBox vending machine model) seems more reasonable.

[zachary miller @ Mar 13th 2008 11:57AM]

I agree, if online rentals are really going to take off i think they should follow the RedBox model. I dont think anyone has brought up the point that the rentals lose most of there importance since its a 30 day lag time for new movies to come to the iTunes store. If it was an immediate release I could see them doing better.

[ZeroCorpse @ Mar 13th 2008 1:08PM]

RedBox?

There's not a RedBox within 50 miles of my location-- Maybe more. It's hardly a handy model when I can't find one anywhere.

With my TV, I just pick a movie and press a button. No driving to a RedBox (wherever they may be) and no waiting for a movie to arrive by mail. It's more convenient for me. I wish the selection were greater, but getting an HD movie in less than five minutes is better and faster than driving to a vendor or any mail-only solutions.

The only difference here is that you can't copy an iTunes movie. You CAN copy a RedBox/Blockbuster/Netflix DVD. You're not supposed to, but we know that people are doing it and adding them to their collection, and THAT is why they aren't jumping on the downloads a lot of the time.

I still buy DVDs. There are SO MANY sources for used DVDs, and they're usually under $10 for pretty much anything I'd want in my collection. Some of them end up being cheaper than the time, effort, and materials some people spend doing the "rent & copy" thing.

So if I haven't seen a movie yet, I'll rent it on iTunes (or catch it in a theater on a cheap matinee day). If I liked it, and want to add it to my collection, then I find a used copy from one of my sources. I generally back them up onto my TV, so I don't end up getting any more scratched discs and I can play them simply by scrolling through my library and picking the movie I want to see.

Downloading will pick up over time. The technology isn't accessible to everyone but it will be within the next couple years.

[Javaflash @ Mar 13th 2008 11:43AM]

Nevertheless, for such a small library, iTunes' numbers are still impressive.

[RikF @ Mar 13th 2008 11:45AM]

Why are we comparing profit from one stream to revenue from another? Aren't these entirely different things?

[Adam Gott @ Mar 13th 2008 11:56AM]

I know how to use Linux and I don't buy anything from iTunes...

It's not so much the DRM that bothers me (although it does bother me) but more so the price - if I can get it on DVD for $20 why am I going to pay $15 for a DRM'd copy on iTunes? The same goes for ebooks and everything else, they should be significantly cheaper if I download and don't get a physical media.

[BT1113 @ Mar 13th 2008 12:15PM]

People don't seem to realize that the profit margin on digital videos is much higher than a physical copy. While it might not seem like much, they basically made the money without having to pay for:

making the DVD case
DVD insert
shipping the DVD

All they did was give the content to Apple and they did the rest. It may not be "much" but it sure is a start. As they simplify the process along with more people understanding the service, the business will become more successful. It's only a matter of time.

[CraigJ @ Mar 13th 2008 12:54PM]

I'd just like to point out that Disney's $35B in annual revenue ( http://finance.google.com/finance?q=NYSE%3ADIS ) is not just selling media: There is also significant revenue from other ventures like ABC and the theme park business, etc... The real question is, what percentage is this of the traditional DVD sales? That is the comparison to make.

[Jeff @ Mar 13th 2008 2:23PM]

...but that might actually be a FAIR comparison. no one wants that.

furthermore, would comparing Profits make sense? They're comparing the $1.44 earned per video to what exactly? the $29.99 per DVD sold? Are they also counting the costs of producing, shipping, etc. they have to spend on physical media? of course not. So even if they WERE talking about revenues of JUST their media, it still wouldn't have an relevance.

This isn't a "fair comparison" really looking at the benefits, it's just some nonsense trying to marginalize the perceived impact that the iTunes Store has had.

[TorontoGuy @ Mar 13th 2008 12:54PM]

One problem with downloads is that they make it difficult to transfer the downloads between machines. If you want have a TV in the bedroom or a portable DVD player for travelling...you are out of luck with downloads. This is why people will always prefer the freedom of physical media. Downloads are fine for temporary time shifting...shows that you didn't have time to watch when they were originally aired and will delete as soon as they are done.

[ZeroCorpse @ Mar 13th 2008 1:16PM]

But your logic would require that you have a DVD or Blu-Ray player in every room. I mean, what good is that physical media without a set-top box to play it, right?

It's the same for the downloads. You'd have a player in every room you'd want to play it in.

I don't see how this is ANY different, except that in the download scenario, you only need the set-top box, where in the 'physical media' scenario, you need both the set-top box and the media. And in the download scenario, you run the risk of damaging or losing the physical media when you give it to someone else to play in another room.

If I have two TV units in a house, both connected to the same media library and iTunes account, then they both have access to the same media, and there's never any disc-handling involved. What's more, the two players can both play the same movie simultaneously-- Try that with two DVD players and one disc.

[Lars @ Mar 13th 2008 3:13PM]

"I don't see how this is ANY different, except that in the download scenario, you only need the set-top box, where in the 'physical media' scenario, you need both the set-top box and the media. And in the download scenario, you run the risk of damaging or losing the physical media when you give it to someone else to play in another room."

OK... you still need the media, even though it's not physical. I don't know what you do personally, but I've never damaged a single CD or DVD.

Also, DVD player = $30, iTV = $230. Let's say you have 3 TV's in your house like me. That's $90 for every TV to have a DVD player, or $690 for every TV to have an iTV.

"two players can both play the same movie simultaneously-- Try that with two DVD players and one disc."
I honestly don't see the benefit to this. Does your soul occupy two physical beings?

Logistically, it makes better sense in some ways. Although it requires you to have an extra device running at all times.

Since owning DRM encrusted movies equates to not owning anything (in my eyes), I think a better solution would be if one could just pay for access to videos from a central server on the internet, which could be played on an iTV-like device that you log into. That way it wouldn't matter where you are, or whether you even own the player you're using. You could watch your library from a hotel or whatever.