Digital threat prompts movie industry downgrade

The stocks of The Walt Disney Co., News Corp., CBS Corp., Time Warner Inc. and Viacom Inc. fell slightly more than the broader market by the close, with CBS falling the most, by 4.7 percent, or 87 cents, to $17.73.

"Shifts from physical to digital will disrupt the marginal economics of the TV and movie businesses, just as it did for music," analyst Anthony DiClemente said during a conference call.

DiClemente argued that the average profit the companies see from new DVDs, including higher-priced Blu-ray discs, is $10.59. Selling the same movie through Apple Inc.'s iTunes online music and video store nets them $9.29, 12 percent less, he said.

Online movie rental services offered by iTunes and Netflix Inc., with profits ranging from $1.81 to $2.44 per movie rented, will further hurt the industry as more young people choose to rent digital copies, he said.

"Owning a collection of movies in this new digital world is really just not that cool for young adults in the target demographic that we look to for the future of the business," DiClemente said.

The industry has reported that DVD sales are declining.

DiClemente said the proliferation of digital video recorders also will push down TV advertising revenue as viewers increasingly skip ads.

Disney, Viacom, Time Warner and CBS declined to comment. News Corp. did not immediately respond to messages seeking comment.

Other analysts said they shared concerns about the technological shifts faced by the entertainment industry but did not foresee the same dire consequences.