Declining growth in U.S. and global box office and their counterparts in the home entertainment industry prove that a paradigm shift is currently underway that will impact our businesses.

“If you do not go to the movies, my kids won’t eat,” is a statement that I have used over the years in my various management and consulting roles. It is meant to be both comical and deadly serious at the same time, as the trickle down effect of large numbers of people choosing to attend or not attend the movies impacts a lot of businesses along the entertainment and entertainment technology food chain.

Even before the final year-end 2005 figures are reported for a declining U.S. and global box office and their counterparts in the home entertainment industry experiencing vastly reduced growth, one thing is for certain: the tides are changing in the entertainment industry and a paradigm shift is upon us.

No one along the food chain will be immune. Production, post-production, visual effects providers, hardware and software vendors, etc. will be affected in one way or another. Some will be caught up in the next wave and will be able to surf to continued success and others will need to be thrown a life preserver, with a few organizations not surviving the tides of change.

This paradigm shift that is currently underway is a direct result of a number of factors, all of which are consumer driven, driven by changing buying patterns and all impacting the way content is distributed and consumed from a technology point of view. It is not a creative change, but one that will impact our businesses.

These factors include:

• The maturation of the markets for traditional content.

• Higher broadband penetration around the world.

• Downloads of TV shows available for a low fee on products such as the video iPod.

• Wireless content delivery technology making in roads with an impact that will most likely be felt in late 2006 and certainly in 2007.

• The increased penetration of DVD burners.

• The forthcoming wave of video-on-demand: this technology has long been on the horizon, but only now has achieved critical mass. Consumer demand and the availability of the technology enabled this revenue stream to be realized, even though some of the early product is available for free.

This paradigm shift is a direct result of a number of factors, including the downloads of TV shows available for a low fee on products such as the video iPod.

Of particular concern are the declining box office, currently estimated to be off by 5-6% with admissions down 11% from 2004, and dramatic slow down of the home entertainment industry. The DVD portion of the home entertainment industry was up approximately 8%, but that is less than a third of the prior year’s increase.

Along the way, studios have collapsed the home entertainment release window to just a little more than four months from theatrical release, when it seemed that only a few years ago it was at six months, in order to salvage revenue and to maximize the advertising and promotion dollars spent for the theatrical release. Fox has even announced that the new window for its products to come out in high-definition will be 60 days after theatrical release.

Can the other studios be far behind from making a similar decision and one that involves all product?

Furthermore, the market will be further impacted by the Jan. 27 release of Bubble from director Steven Soderbergh and produced by Mark Cuban and 2929 Prods. This film will be the first day-and-date release of a film in theaters, on DVD and on TV. It is not yet determinable how many theaters other than the Landmark circuit owned by Cuban will take the film. Nor is it discernable how well the DVD will fare in a declining market place. And as far as TV goes, the movie may be limited to HDNet, also a Cuban owned organization.