Warner Bros. brings film vault into digital age

Warner Bros. is reaching into its film vaults so it can sell old movies on made-to-order DVDs, in a move it hopes will goose sales of a vital product in a downturn.

The initiative, which Warner claims is the first of its kind for a major studio, is an effort by the Time Warner (nyse: TWX - news - people ) Inc. subsidiary to combat what could be a fundamental decline in demand for DVD purchases - a falloff that can be blamed on market saturation as much as the recession.

Walt Disney Co. (nyse: DIS - news - people ) CEO Bob Iger warned of this shift last month when he noted that most U.S. households own 80 DVDs already, leading people to become "more selective" about what discs they buy.

U.S. DVD spending fell 7 percent last year, to $21.6 billion, according to The Digital Entertainment Group, an industry consortium. While high-definition Blu-ray disc spending nearly tripled, it represented a small slice of the market, at $750 million.

Now retailers are cutting back shelf space for DVDs. And digital downloads have come nowhere near to making up the difference, said Tom Adams, president of Adams Media Research, who doesn't predict overall growth in home video until 2010.

Home video revenues are a key profit driver for the studios - in some cases, accounting for 60 percent more money than what a studio collects at the box office. So the recent decline has forced studios to do everything from lay off staff to pare back movie making.