A BUSINESS CASE FOR ANAMORPHIC by Dan Ramer

There can be little doubt that anamorphically enhanced video improves picture quality. After all, in anamorphic mode there are almost 39% more video lines displayed for a letterboxed film. And anamorphically enhanced video seems to be the single most requested feature for new DVD releases, indicating high demand. So why have some studios been so reluctant to offer this outstanding feature?

"It's just too expensive to create new film-to-video transfers."

Yes, an investment is required, and although it can be substantial, it can be recouped.

Profit Opportunity No. 1: DTV/HDTV is an inevitability. No one knows when digital video technology will reach critical mass, but it will unquestionably replace analog television transmission and analog video signal sources. It makes good business sense to prepare the back-catalog for this market, to ready titles for another opportunity to rent them one more time, to invest in a new revenue stream.

Sony (Columbia) is preparing high definition masters, which will be compressed to make them suitable for renting to HDTV broadcasters. For their DVDs, Sony then down-converts the HD masters to anamorphic enhanced, 480-line video (prior to DVD video compression and authoring) with a simple and inexpensive process performed by a computer with no manual intervention. Sony spreads its new transfer expenditures over several fiscal years, and recovers some (in some cases, all) of a transfer's cost through DVD sales. Sony will be in a unique position to offer broadcasters films in HDTV-ready compressed video as soon as demand warrants. This approach shows a fundamental understanding of how the marketplace evolves based on emerging technologies. Disney, Fox, and Paramount will have to play catch-up, and sustain higher annual costs to produce a sufficient number of suitable transfers to compete. This revenue steam requires an investment regardless of the existence of DVD.

Profit Opportunity No. 2: sell more DVDs. At the risk of trying your patience, let's take a look at some sales figures (see the Appendix for the raw data and some explanation). DVDs are available in a number of video formats and combinations of formats. If we compare all motion picture DVDs on the market with the fifty all-time best selling DVDs and examine which video formats they contain, we might be able to spot a trend.

77.5% of the top 50 best sellers offer anamorphic, and 40.8% don't offer a 4:3 format at all. Yet, only 44.7% of all DVDs offer anamorphic. These disproportionate figures show that anamorphically enhanced video is a feature much prized by the DVD buyer. Let's look at it another way. How are the studios ranked based on popularity?

The argument can be made that the reason these anamorphic titles sold well is that they represent the most popular and most successful films. Actually, this argument more correctly applies to the 4:3 titles. 12.2% (a little less than a third of the 40.8%) of the anamorphic-only titles earned less than $100M at the domestic box office and did not earn back their production costs in domestic theatrical release. Some were called disappointments, others outright disasters. So these popular DVDs overcame content and sold well due to quality and extras.

On the other hand, the popular 4:3 DVD titles were either box office smashes that topped the $100M mark, or were simply very profitable. For example, 2001 is the lone MGM 4:3 LBX DVD on the list; it earned 5.4 times its budget and is one of the 100 finest films ever made. Disney sold quite a few copies of Con Air ($101.1M U.S. theatrical gross), Pulp Fiction ($107.9M), Scream 2 ($101.3M), and The Rock ($134M); these four titles were highly successful in theatrical release and, consequently, much in demand on DVD. Paramount's lone 4:3 title on the list is Top Gun, a $176.8M smash hit. Of the two Criterion titles, Silence of the Lambs earned $130.7M at the box office and Robcop earned $53.4M, 4.11 times its budget; both highly successful. So these 4:3 titles (Pan & Scan and/or LTBX) were bought for content regardless of picture quality.

In two separate surveys conducted by The Big Picture, anamorphic was a significant issue with DVD buyers. In one survey, 62% responded that anamorphic is extremely important. In another, 69% responded that anamorphic was extremely or very important. This compares favorably with the sales figures.

We may then conclude that anamorphic sells. So studios that offer this feature will sell more copies. More profit. Studios that do not support anamorphic may not fully understand the demographics and demands of the DVD market. A sound business strategy would be to follow Sony's example and prepare for DTV/HDTV while simultaneously offering the very best quality anamorphically enhanced video DVDs.

"There are simply not enough anamorphic television sets out there to bother with, and we're not in the business of selling hardware."

This is a most naive and shortsighted argument. Hardware will not sell unless there is software to run on it. Software will not sell unless there is a platform on which to run. Player and content vendors are in an incestuous relationship. Each must stimulate the marketplace with product to maximize interest and sales. (Interestingly, as the DVD player installed base grows, it is the content vendor that stands to profit more.)

In yet another BIG Picture survey, this one for display aspect ratio, 46.4% of respondents said that they either owned a anamorphic display or will be buying one in the near future. Not insubstantial. And anamorphic aspect ratio televisions will become the standard as the influence of DTV/HDTV grows stronger. (Interesting note: since the proportion of anamorphic sets is smaller than the proportion of popular anamorphic DVDs, this may indicate that mainstream DVD buyers are satisfied with their players' ability to convert anamorphically enhanced video to 4:3 video.)

Motivating sales of anamorphic sets and DVD players will grow the installed base and stimulate further sales as friends and neighbors experience the full potential of DVD. More software will then be sold. More profits.

There is yet another hardware-driven opportunity. Currently, the overwhelming majority of DVD players were purchased in households that did not previously own Laserdisc. So there exists an installed base of approximately two million LD owners who are already advocates of optical video discs. But LD collections are expensive, so it will take more than reduced video noise and the convenience of not having to flip to win this market segment. It is not uncommon for a LD owner to post a forum message that asks, "Since a DVD 4:3 LBX transfer is no better than the LD, why should I bother to buy?" Point well taken. The anamorphic mode's level of detail is the single most dramatic improvement over LD. Here is another opportunity lost by studios that view the DVD market as a Laserdisc market, another opportunity lost to sell the same title again by offering an improved transfer in a new format with higher detail and quality.

Stimulating player sales sells DVDs. Great DVDs stimulate player sales. A stimulated market means more profits.

"The 4:3 letterboxed transfers look great."

I'm sorry, they don't. They can't. A film shot with a 2.35:1 aspect ratio will occupy only 272 of the available 480 horizontal scan lines when letterboxed. The anamorphically enhanced mode will occupy 378 of the 480 available horizontal scan lines for the same letterboxed film. When the height of a display is shrunk for the anamorphic mode, it forces 378 scan lines together in the space that would have been occupied by 272 lines in the conventional 4:3 letterbox mode. The scan lines become thinner and tend to disappear. The picture looks sharper, there's more detail, there's more information, and there's more stability.

In yet another BIG Picture survey to select the studio for the golden bone-head award, Disney and Fox garnered 49% and 39% of the votes, respectively. The primary issue was never having supported anamorphically enhanced video. 88% of the votes went to the two studios that don't offer the picture quality that DVD buyers desire.

Do 4:3 LBX DVDs look good? Compared to VHS, they look great. Compared to a good anamorphically enhanced DVD, they do not. Can the DVD consumer see the difference? Clearly.

"These arguments apply only to early adopters, those technically oriented consumers eager to embrace new technologies and most capable of understanding them. For DVD to reach the mainstream, to achieve an installed base of tens of millions, the software will have to appeal to the average consumer. And the average consumer doesn't even like letterbox."

Even in the VHS videotape format, films were released in the letterboxed format. Since additional waves of such releases followed, one must conclude that initial sales were sufficient to justify offering the widescreen format again. And the overwhelming number of laserdisc titles are letterboxed.

anamorphic aspect ratio analog televisions are gaining market acceptance. As discussed above, digital television with its mandated anamorphic aspect ratio will become the standard. And the sales statistics clearly indicate that anamorphic-only DVD titles sell well. The conclusion is that there is a market for widescreen presentations, and anamorphically enhanced video in particular.

But there is a simple and straightforward resolution to any remaining uncertainty a DVD publisher may have concerning aspect ratio. Follow the lead of studios that have been the most successful DVD publishers; offer both anamorphically enhanced video and 4:3 pan & scan on each DVD. Warner favors one format on each side. Columbia favors one format on each layer. If really necessary, delay releasing those films that require layer breaks (RSDL) to fit content on one side until DVD-18 (two-sided RSDL) becomes available. This would seem to be James Cameron's savvy approach for Titanic and The Abyss.

Appealing to the broadest range of preferences within the market ensures maximizing sales. More profit.

"The DVD market is too small right now to justify the investment."

The major studios with the smallest percentages of anamorphic releases are charging the highest prices. This demonstrates a lack of faith and commitment to the DVD market. High prices and questionable quality will result in lower sales, which will provoke a self-fulfilling prophecy: "See, I told you we couldn't make a decent profit with DVDs."

DVD is a phenomenon. It is the fastest growing new product in the history of the consumer electronics industry. Affordable players and films that bring unprecedented quality to home video and home theater have caught the attention of the marketplace. The DVD market will grow even more swiftly if all content providers consistently take advantage of the technology and offer the highest quality presentations. And a business strategy that sees beyond this year's balance sheet will yield the highest profitability over the economic lifetime of the NTSC DVD format.

In Summary

A studio's vigorous support of the DVD market with high quality software and the patience to participate in the growth of the format will ensure DVD profitability.

Offering DVDs that contain both anamorphic and 4:3 ensures the broadest appeal and highest level of market success.

Creating new high definition masters and down-conversions for DVD while spreading the costs will minimize annual expenditures, maximize DVD quality, and provide revenue from both DVD sales and HDTV broadcast rentals.

All DVD publishers have the opportunity to profit handsomely by satisfying the demands of the marketplace and reaping the rewards for that support. I hope I've been able to demonstrate that it's in the studios' best interests to publish DVDs with anamorphically enhanced video. Let's hope that rational minds (particularly at Fox, Paramount, and Disney) appreciate the logic of profit, and provide the highest quality product our money can buy.

Appendix

DVD Empire Rank	Weeks on VideoScan Top Ten	Title	Budget ($M)	US Theat. Gross ($M)	Gross To Budget Ratio	Studio	anamorphic?	Comm. Track?	Featurette/ Deleted Scenes
1	15	Starship Troopers	95	54.7	0.58	Columbia	Y	Y	Y
2	Incomplete	Contact	90	100.9	1.12	Warner	Y	Y	Y
3	22	Tomorrow Never Dies	110	125.3	1.14	MGM	Y	N	N
4	Incomplete	Fifth Element, The	90	63.5	0.71	Columbia	Y	N	N
5	N/A	Air Force One	85	172.6	2.03	Columbia	Y	Y	N
6	14	U.S. Marshals	60	57.8	0.96	Warner	Y	Y	Y
7	5	Lost In Space	80	69.1	0.86	New Line	Y	Y	Y
8	13	L.A. Confidential	35	64.6	1.85	Warner	Y	N	Y
9	11	Sphere	80	37.0	0.46	Wawrner	Y	Y	Y
10	8	As Good As It Gets	50	147.6	2.95	Columbia	Y	Y	N
11	5	Dark City	27	14.3	0.52	New Line	Y	Y	N
12	N/A	Apollo 13	62	172.1	2.78	Universal	Y	Y	Y
13	N/A	Godzilla (1998)	125	136	1.09	Columbia	Y	Y	Y
14	N/A	Terminator 2	100	204.8	2.05	Artisan	Y	N	N
15	4	Star Trek: First Contact	45	92	2.04	Paramount	Y	N	N
16	N/A	Blade Runner	28	27	0.96	Warner	Y	N	N
17	Incomplete	Con Air	75	101.1	1.35	Buena Vista	N	N	N
18	3	Gattaca	36	12.3	0.34	Columbia	Y	N	Y
19	Incomplete	Devil's Advocate	57	61	1.07	Warner	Y	Y	Y
20	11	Jackal, The	60	54.9	0.92	Universal	Y	Y	Y
21	1	Game, The	50	48.3	0.97	Polygram	N	N	N
22	N/A	Austin Powers	17	53.9	3.17	New Line	Y	Y	Y
23	3	Face/Off	80	112.2	1.40	Paramount	Y	N	N
24	N/A	Das Boot	N/A	11.4	N/A	Columbia	Y	Y	Y
25	4	Pulp Fiction	8	107.9	13.48	Buena Vista	N	N	N
26	5	Wild Things	20	29.8	1.49	Columbia	Y	Y	Y
27	N/A	12 Monkeys	29	56.9	1.96	Universal	Y	Y	Y
28	5	2001: A Space Odyssey	10.5	56.7	5.40	MGM	N	N	Y
29	4	City Of Angels	N/A	78.8	N/A	Warner	Y	Y	Y
30	N/A	Spawn	40	55	1.38	New Line	Y	Y	Y
31	7	Wedding Singer, The	N/A	80.2	N/A	New Line	Y	N	N
32	Incomplete	Boogie Nights	15	26.4	1.76	New Line	Y	Y	Y
33	3	Top Gun	N/A	176.8	N/A	Paramount	N	N	N
34	N/A	Dune	45	27.4	0.61	Universal	N	N	N
35	N/A	Man in the Iron Mask, The	35	56.9	1.63	MGM	Y	Y	Y
36	N/A	Scream 2	24	101.3	4.22	Buena Vista	N	N	N
37	N/A	Silence of the Lambs (Criterion)	N/A	130.7	N/A	Criterion	N	Y	Y
38	4	Mercury Rising	N/A	32.9	N/A	Universal	Y	N	N
39	N/A	Rock, The	75	134	1.79	Buena Vista	N	N	N
40	N/A	Postman, The	80	17.6	0.22	Warner	Y	N	Y
41	N/A	GoldenEye	60	106.4	1.77	MGM	Y	N	Y
42	N/A	Twister	92	241.7	2.63	Warner	Y	N	N
43	2	I Know What You Did Last Summer	17	72.2	4.25	Columbia	Y	Y	N
44	6	Wag the Dog	15	43	2.87	New Line	Y	Y	Y
45	2	Big Lebowski, The	N/A	17.4	N/A	Polygram	Y	N	N
46	N/A	Fallen	N/A	25.1	N/A	Warner	Y	Y	N
47	N/A	Seven Years In Tibet	70	37.9	0.54	Columbia	Y	N	N
48	N/A	Video Essentials	N/A	N/A	N/A	VE	N/A	N/A	N/A
49	N/A	RoboCop (Criterion)	13	53.4	4.11	Criterion	N	Y	Y
50	N/A	Amadeus	N/A	51.6	N/A	Warner	Y	N	N

At the time this report was written, dates for VideoScan data ranged from May 3, 1998 to November 8, 1998. Data labeled incomplete began before May 3, 1998 or extended to beyond November 8, 1998. DVD Empire ratings extend from its entry into the market and are shown as of November 20, 1998.

Since complete historical quantitative data from VideoScan was not available to this author, a comparison was made between VideoScan data and the DVD Empire best sellers list. The concern was skewing the data toward computer savvy consumers who might be more sophisticated than mainstream DVD purchasers are. Since there was reasonable agreement between the two (for the most part, higher ranked titles seem to have been on VideoScan's top ten list longer), it is assumed that Internet buyers show the same preferences as all DVD purchasers.

Films' financial data was culled from the Internet Movie Database. The budget column shows the film's original shooting budget. The gross is reported only for the U.S. since this paper focuses on Region 1 DVDs (financial data for other countries within Region 1 are not available). The gross to budget ratio quickly indicates whether a film may have been profitable through ticket sales. (This is not entirely accurate since the gross includes the theater owners' shares and the budget does not include the costs of striking prints and publicity - this ratio is simply offered as a relative indicator.) The higher the number, the more profitable the film. A ratio of less than one indicates that a film did not earn back its production costs at the domestic box office.

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