DVD profit margins double that of VHS

Found on Ars Technica on Friday, 01 April 2005
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Between 2002 and 2003, MGM saw a 40% boost in DVD shipments in North America, and 53% increase worldwide. One slide shows just how quickly DVD has caught on: it took only five years for 30 million DVD players to be sold, compared to circa 8 years for CD players, and 10 years for PCs to reach that volume. All of this translates into a booming market, which helps explains the considerable profit margins attached to DVDs. This slide indicates that net profit margins on DVD sales are 50-60%, while the lingering VHS business sees 20-30% net profit. To put this into plain English, your average $20 DVD apparent costs around $9 to produce, advertise, distribute, etc., leaving about $11 on top as pure profit. For an industry supposedly under dire threat from piracy, things look pretty rosy.

One thing is certain: these DVD numbers clearly show that people want to pay for compelling content. DVDs are superior to VHS in every way (save their oppressive encryption), they're roughly the same cost to produce as VHS is these days, but many people are willing to pay more.

So much for all statements claiming that P2P hurts their sales and drives them into bankruptcy. More than 50% profit per DVD isn't bad; probably even more, because if a DVD costs $9, how can some shops sell DVDs cheaper than that? Or even give them away for free in magazines?