Blu-ray's rise can't make up for DVD dip

U.S. homevid spending fell more than 7% in the first quarter, as the ongoing recession took a toll on DVD and Blu-ray sales and rentals.

First-quarter revenue from consumer purchases fell 11% to $3.1 billion, according to Video Business research. Sales of Blu-ray discs rose just over 100% from a year earlier, but the still relatively small category, representing about $230 million in spending for the quarter, only partially offset the 15% decline in DVD sales.

Still, DVD’s performance represents an improvement from the fourth quarter of 2008, when sales fell closer to 18%, according to studio estimates.

Rental was basically flat, with an increase of just under 1%, at $1.7 billion, when kiosk and Blu-ray rentals are included, according to Rentrak.

The Rentrak data includes an adjustment to 2008 figures, which the company just restated to reflect fewer bricks-and-mortar rental stores — big chains Blockbuster and Hollywood/Movie Gallery alone closed more than 2,000 stores between 2006 and 2008 — and lower prices at kiosks and through subscription plans such as Netflix.

Studio execs mostly blamed the light foot traffic at retail, consumers’ growing tendency to spend only on necessities, as well as a later Easter than last year, for the declines in DVD sales.

“The good news is that people are still interested in content from the studios,” said David Bishop, president of Sony Pictures Home Entertainment, referring to the growth in the theatrical box office. “The real teeth of this recession is at retail. Even if people go into the store environment, they are in a more discerning mode.”

Summit Home Entertainment’s “Twilight” delivered socko numbers in its March 21 bow and should sell more than 6.7 million units on DVD/Blu-ray, according to the studio.

“With theatrical performances, people want to escape and be in a community setting, and so with our midnight ‘Twilight’ release parties, we created a community event for them,” said Summit prexy Steve Nickerson.

Similarly, 20th Century Fox Home Entertainment reported that its March 31 release “Marley and Me” is tracking to sell 5 million-6 million units.

“I think the fear and the alarm and the caution is still there,” said Simon Swart, Fox exec VP-general manager. “But the wholesale panic is abating a bit. ‘Marley and Me’ results have been very strong.”

Despite its premium price, Blu-ray doubled its revenue over last year, when a title was deemed a Blu-ray hit if it generated 8% of its sales in the format. Now, such titles as Fox’s “Quantum of Solace” and Lionsgate’s “Punisher: War Zone” are achieving 20% of sales on Blu-ray.

“Blu-ray sales were stronger for ‘Pinocchio’ than on (last fall’s) ‘Sleeping Beauty,’ ” said Lori MacPherson, general manager of North America for Walt Disney Studios Home Entertainment. “More families are getting involved with Blu-ray.”

Digital revenue from Web-based sell-through and rental transactions are on the rise as well, say studios.

Lionsgate president/co-chief operating officer Steve Beeks projects that industrywide Internet downloads and rental revenue will grow 50% in 2009 over 2008, generating just under $750 million. If counting packaged, digital and cable/satellite video-on-demand transactions, the home entertainment business will be off 2%-3% from 2008, he predicts.

“If there is cannibalization, it’s minor,” Beeks said. “The digital business is driven by a younger customer — a new consumer. We’ll end up with a growing home entertainment business once we get the economy turned around.”

Warner Home Video president Ron Sanders added, “People are choosing new ways to consume entertainment, but there is no indication of long-term change in consumer behavior.”

Most studio executives anticipate full-year 2009 DVD/Blu-ray spending will come in below 2008 by a single-digit percentage, thanks to an expected strong release slate later in the year.

“I think you have the stars potentially aligning for a tremendous lift from the lows of where we hit through the end of 2008,” said Craig Kornblau, Universal Studios Home Entertainment president.

(Marcy Magiera and Susanne Ault work for Video Business, Variety‘s sister publication.)

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