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Recession Puts a Spotlight On Hollywood


Entertainment industry at the mercy of discretionary spending.


There was a time, not too long ago, when an economic downturn buoyed Hollywood escapism. Rather than wallow in the misery of dwindled savings and rising unemployment, folks scraped together what little money they had to enjoy a matinee show or a DVD rental. Even as recently as 6 years ago -- when the Dow Jones sunk below 7,300 -- no less than 7 films grossed over $400 million and DVD sales showed healthy growth. Delighted executives dubbed the industry "recession-proof."

Today, that doesn't hold as much water.

Unlike years past, when consumers were limited in their choices of diversion, online technology has advanced to where streaming video is of better-than-adequeate quality. Sites like Hulu and Veoh allow feature-length content to be viewed free of charge with fewer commercial interruptions. And as content grows exponentially -- coupled with the declining costs of larger monitors -- there's little to differentiate viewing your favorite program online from viewing it on TV.

Actually, there's one difference: Revenue.

While the majority of streaming content providers prevent viewers from fast-forwarding through ads, as is common practice among the DVR set, revenue from online sponsorship pales in comparison to the traditional 30-second commercial.

And as long as network websites offer a backlog of episodes viewers can catch after missing several weeks' worth, it's unlikely they'll want to shell out $2 per episode on iTunes (AAPL) - or wait for the DVD set to come out.

A recent survey by Forrester Research showed that adults aged 25 to 34 were the least likely to give up high-speed Internet access when cash is low. They were, however, the most likely to forego premium cable and a trip to the cineplex - as evidenced by a 4% decline in theater attendance this year.

According to Nielsen VideoScan, sales of new releases plummeted 22% this quarter. This means less and less profit to support costly production. Now studios are cautiously playing damage control.

NBC Universal (GE) announced last month it would be cutting 2009 spending by $500 million to combat the slowing economy. Paramount (VIA) has pushed back the release of 2 movies to postpone marketing costs and plans on releasing fewer titles this year. Meanwhile, Warner Bros. (TWX) recently cut releases to focus on "tent-pole" films and is eliminating its Picturehouse and Warner Independent labels.

So much for being recession proof.

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