Hollywood’s DVD Blues: Who Gets Hit Hardest?

Back to grim news: A bad economy and bad timing mean that the DVD business, once a source of strength for Hollywood, is going to be a weakness. So says J.P. Morgan’s Imran Khan, who expects “home entertainment revenue” to shrink at least five percent this year.

Why? Because DVD sales have been on the down slope for quite some time and because no one seems to have much interest in Blu-ray, the expensive new DVD format pushed by Sony (SNE), which was supposed to replace DVDs as Hollywood’s cash cow.

And because, while people are more likely to spend time huddled around the TV these days, that doesn’t mean they’re going to actually buy movies–they may rent them, which is good for the likes of Netflix (NFLX), but doesn’t do much for Hollywood.

So who gets hit worst? Khan has ranked the major media conglomerates by their exposure to home entertainment, expressed as a percentage of earnings*:

Viacom (VIA): 21 percent

Time Warner (TWX): 20 percent–or 10 percent if you include the company’s contribution from its Time Warner Cable spinoff

News Corp. (NWS): 18 percent

Disney (DIS): 15 percent

All things being equal though, you’re probably still better off tied to the DVD business, which is slowing, than the ad business, which is disappearing.

Case in point: Viacom shares are down 60 percent in the last year. But that looks fantastic compared to the performance of sister company CBS (CBS), which is down 80 percent. And yes, I’m trying to argue that being down 60 percent is the new up. But that’s where we are these days.

*Khan uses different definitions of earnings–sometimes he’s talking about EBITDA, sometimes OIBDA, etc.–for different companies. Chances are you don’t care.