M&E Daily

Home entertainment spending up slightly in first half; digital models account for 29% of overall market

by Terence Keegan

The home entertainment pie is growing again — albeit slightly, according to DEG: The Digital Entertainment Group. But how are slices of the pie split between the segment’s various physical and digital distribution models?

Studios and other home entertainment distributors are toasting the increase in consumer spending on Blu-ray discs, DVDs, and digital formats during the first six months of 2012. Yet while the gain may signify further stabilization of the home entertainment market’s overall value, the market remains in the midst of dramatic shifts between physical and digital business models.

The $8.4 billion in Blu-ray and DVD sales, downloads, disc rentals, video-on-demand transactions, and streaming subscriptions between January and June 2012 marks a 1.43% increase in revenue from the same period in 2011, DEG says.

Total packaged media revenues — including sales of DVD and Blu-ray discs and rentals of discs through brick-and-mortar outlets, subscription services, and kiosks — accounted for 71.25% of total home entertainment revenues in the first half of 2012, according to calculations made by M&E Daily from the DEG data. But for the same period in 2011, the packaged-goods side of the business claimed an 83.59% share.

Meanwhile, digital models — which include paid downloads of movies and TV series, transactional video-on-demand through cable and satellite TV providers, and streaming video-on-demand services — have quickly grown to account for more than a quarter of the overall market (28.75%).

With overall revenues growing, the shift from physical to digital is not entirely a zero-sum game. But some models are growing (or declining) more rapidly than others.

On the physical side, Blu-ray disc sales continued to increase, with first-half revenues up 13.3% compared to the same period in 2011. Overall packaged media sell-through revenues for the first six months of 2012 fell $140 million short of revenues for the same segment during the first six months of 2011.

What seems to have especially accelerated the shift from physical to digital spending is Netflix’s overt de-emphasis of its discs-by-mail service. The size of the discs-by-mail market for the first six months of 2012 ($672 million) is less than half of what it was during the first six months of 2011 ($1.356 billion), according to the DEG.

Streaming subscription services from Netflix and other companies accounted for $1.1 billion in revenues for the first six months of 2012, nearly half (46%) of the total consumer spending on digital models for the period. Electronic sell-through and transactional video-on-demand both posted double-digit gains in consumer spending year over year.

UltraViolet is serving as a bridge for some consumers between physical and digital models, with the DEG noting that some 4 million households to date have created accounts for digital access to movies they purchased (largely on disc). The trade group did not provide estimates for UltraViolet sales for the first half of the year, nor did it specify whether it accounts for spending on UltraViolet titles as packaged goods sell-through or electronic sell-through.