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The theory I've heard is that they can't sell the stories afterward.
Currently they're making their profits off blockbusters, where after putting a quarter billion dollars into production and marketing you've got too much on the line to risk your dialogue not being trailer-worthy and lowest-common-denominator approved, and if you know your best sequences are going to be CGI kaiju fighting, why would you shorten those just to buy time to make a side character slightly more well-rounded? But mid-budget films, the ones where they used to spend a few tens of millions of dollars to get back a few more tens of millions, aren't working out so well as they used to ... and yet it's the mid-budget range that used to occasionally spiral into massive box office successes and Oscar takeaways for the biggest winners, because they were in the sweet spot where they were cheap enough for directors to take risks, too cheap to replace characterization with special effects, and yet expensive enough to exhibit real production quality behind the risky ideas that worked out.
I have no idea whether this theory is actually true; there doesn't seem to be nearly as much overlap as I'd like between "people who actually know something about the movie industry" and "people who back up their theories with quantitative analyses".
Here’s Matt Damon explaining that the death of DVD sales killed mid budget movies that took risks.
He doesn’t give quantitative analysis.
He also doesn't explain how come those movies were getting made before DVDs ever became a thing. It's funny how he talks about the 90s when the DVD only became a thing in 1997 and took 2-3 years to really get popular.
Why wouldn't it apply to all home video sales rather than specifically DVDs and only DVDs?
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