So much for the high-def discs that studios once hoped would revive home entertainment. Consumers bought about 124M Blu-ray discs in the U.S. last year, + 4.2% vs 2012, research firm IHS Technology reports this morning. But with prices falling, consumer outlays only increased 2.6% — not nearly enough to compensate for the 13.6% drop in DVD sales. If the trend continues, then it could result in “a downward turn in spending for the [Blu-ray] format in 2014,” says Senior Analyst Michael Arrington. “In any case, any reasonable amount of growth in Blu-ray is unlikely to prevent what will next year become a decade of decline for a once-thriving disc market.” IHS says that total spending on home entertainment sales and rentals increased 0.7% to $18.29B in 2013, a slower pace than in 2012 when the total was +3.1%. (The market peaked in 2004 at $21.9B, when discs accounted for 96% of home entertainment spending.) The results are especially disappointing, Arrington notes, considering that “2013 was another record year for the theatrical box office.” Disc sales fell 9.3% to $7.47B while disc rental spending declined 8.8% to $4.27B. That was slightly outweighed by increased Internet business. Movie and TV online sales were +38.7% to $1.31B, with rentals +39.6% to $600M, and subscription revenues +31.4% to $3.17B. Pay TV video on demand was up 0.7% to $1.48B.
You can thank Netflix for helping the home entertainment industry to report the coulda-been-worse numbers for video sales and rentals in Q3. Total consumer spending, at $3.97B, was up 0.05% vs the period last year — even though, The Digital Entertainment Group notes, theatrical revenues for the releases were down 6.4% from last year. Still, the numbers show a $13.5M shift from high-margin sales to low-margin rentals: Total sales (including discs and electronic sellthrough) fell 7.4% to $1.72B while rentals (again, physical and electronic) were up 16.5% to $1.06B. Optimists will find comfort in the digital data. Spending on subscription streaming was +33.1% to $815.2M. That’s probably almost all Netflix; DEG doesn’t include subscription VOD that’s “bundled with other services,” which would knock out Amazon Prime. Studios also should be encouraged by the growth of electronic sellthrough: +46.4% to $273.9M. That’s an acceleration from the quarter last year (+37.7%) and in 2011 (+12.8%). VOD spending at $468M was up 2.8%, a slow down from last year when it was +8.5%. Results continue to look dismal for discs, though.
Effective this month, Hollywood studios will package digital film and television content under the standard “Digital” or “Digital HD” brand, trade org Digital Entertainment Group announced today. The distinction applies to non-physical filmed media with the “Digital” or “Digital HD” branding to appear on DVD and Blu-ray packaging, digital downloads, advertising, social media and publicity campaigns, and merchandising as well as in the UltraViolet brand for participating studios. “Digital HD (or Digital) is a dynamic and direct approach aimed at consumers who want movies and television shows that they can access on their favorite devices,” said DEG President Amy Jo Smith in a statement. “Whether they access the DIGITAL HD version as part of a Blu-ray purchase or as transaction through a digital store, we believe this terminology will help them understand they are getting an exciting, versatile product that heightens their home entertainment experience.” Anchor Bay Entertainment, HBO Home Entertainment, Lionsgate, Paramount Home Media Distribution, Sony Pictures Home Entertainment, Twentieth Century Fox Home Entertainment, Universal Studios Home Entertainment, Walt Disney Studios and Warner Bros. Home Entertainment have agreed to participate in the initiative.
Nomura analyst Michael Nathanson doesn’t buy the spin from DEG: The Digital Entertainment Group this week that the clouds are beginning to part for the home video business. The industry group said that spending only fell 2.1% last year — the smallest decline since 2008 — due in part to a 20% increase in spending on Blu-ray discs. ”The industry’s performance clearly stabilized,” DEG said. But Nathanson says in a report this morning that the figures are misleading because they include subscription payments for digital streaming from companies such as Netflix and Hulu Plus. They “are not directly tied to the distinct purchase of one title,” Nathanson says. “Why didn’t prior DEG reports include HBO and Showtime revenues? Consumers are subscribing to these networks for similar content.” But when you take the subscription numbers out, ”the industry’s health looks a little more sickly at -6.6% vs the -2.1% reported,” Nathanson says. “Using this approach, we maintain a view that consumer demand for physical and digital home entertainment titles is still, unfortunately, in secular decline.” The bottom line? Nathanson predicts that U.S. consumers will spend $16.3B on home entertainment this year, -4%, and $15.5B in 2013, -5%.
The years-long decline of home video sales appears finally to have stabilized, the trade organization Digital Entertainment Group reports. While filmed home entertainment dipped 2% for the year in 2011, there were genuine positive signs. Annual spending on Blu-ray discs rose 20% last year, hitting $2 billion for the first time, the DEG says. Additionally, nearly 40 million homes now have Blu-ray playback devices, 38% more than in 2010. The decline in home video revenues has leveled off, with consumer spending on filmed home entertainment rising 1% for the second half of the year. The third-quarter spending actually rose 5%, the first quarterly increase since 2008. Additionally, electronic sell-through was up 9% for the year, and spending on video-on-demand was up 7%. Consumers also continued to embrace HDTV, purchasing 27 million HD sets during 2011. HDTV penetration is now at more than 74.5 million U.S. households.