Digital Home Entertainment to Exceed Physical by 2016, Study Finds

DVD player

Box office and digital revenue will climb steadily over the next five years, but rentals and sales of DVDs and other discs will fall sharply, according to a report released Wednesday by PwC.

In a sign that the future will be streamed and downloaded, the study projects that electronic home video revenue will exceed that of physical home video in 2016. Meanwhile DVDs are looking increasingly imperiled, with PwC estimating that physical home entertainment revenue will fall more than 28% from $12.2 billion last year to $8.7 billion in 2018.

By 2018, electronic home video, which includes subscription video-on-demand services and cable on-demand offerings, will be the main contributor to total filmed entertainment revenue, overtaking the box office by 2017, the study finds. In five years, revenues for the sector will double from $8.5 billion in 2014 to $17 billion by 2018.

Though the movie business is clearly an industry in flux, there are bright signs for one of its oldest distribution avenues, the theatrical exhibition industry. Ticket sales are projected to climb over the next five years, with domestic box office revenue climbing 15.9% from $10.8 billion to $12.5 billion. Meanwhile ticket prices will increase by less than a dollar from an average of $8.89 to $9.81 by 2018.

“The sector has been quite resilient,” said Cindy McKenzie, managing director of PwC’s entertainment, media and communications practice. “People still want to go to the movies, especially the big tentpole films.”

Even though DVD’s date with the dustbin is fast approaching, McKenzie said that the rise of Netflix, Hulu and other Internet video services are creating new revenue opportunities for movie companies. Further, the growth of electronic sales of movies, which topped $1 billion in revenue for the first time last year, also show some promise and signal consumers are willing to keep buying films as well as renting them.

The flush years of home entertainment may be gone, as revenues get carved up between studios and digital upstarts, but there are cost-savings opportunities.

“The amount of money that you’re making per transaction may not be the same, but it is cheaper to distribute things digitally,” McKenzie said.

The study’s methodology is opaque, with PwC reporting that it relied on historical data and proprietary data to come up with its models and forecasts.

PwC touches on two other silver bullets of interest — 3D and China — both of which were intended to restore the industry to health following DVD’s decline. China remains a tantalizing opportunity for studios looking to pump up international revenues. With a burgeoning population of moviegoers and extensive investment in theater construction, China is growing at a breakneck clip, with the box office climbing 15% last year to $3.13 billion. However, protectionist policies, rampant piracy and the growth of China’s own film industry could pose challenges for U.S. studios in their attempts to tap into the market, PwC concludes.

In the case of 3D, studios’ enthusiasm for the tinted specs appears to have diminished. Though total spending on 3D movies, video and video-on-demand hit $2.2 billion last year, studios scaled back the number of 3D films they released by 20% in 2012.

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  1. I still buy DVDs and Blu-Rays. Since they are cheaper now, I can get a lot. Sometimes I forget passwords with digital, and sometimes they don’t have every movie.

  2. Michael says:

    Yep. No discs and i am done supporting the movie industry for home entertainment. I want to own my movies in the best way possible and that is BLU RAY for me

  3. Bob says:

    “The study’s methodology is opaque”. That is all that I need to know to determine that these conclusions are less than certain. I agree with the other posters that physical sales might be going down, but if you look at the sales of Frozen you can hardly say physical media are anywhere near dead.

  4. Yep says:

    Dvds aren’t going anywhere…they will survive like paper books and cds…audience for them is huge…and theater strong too even though nothing more “anti-tech” than driving to a theater to see content…people love these “old” forms but tech-head consultants are always last to see it

  5. Bob says:

    Also retailers are to blame. The big box stores see these numbers and shrink and cut their movie departments allowing only mainstream movies to be available. The biggest money makers for these stores are the new releases and their cheap bins. Soon movies will be available at release, disappear and show up in a $5 bin

  6. If you don’t have the discs, you don’t have control. We’ve seen incident after incident where people thought they had bought a digital product, but it was later taken away. Who are they kidding here?

    When you buy or use the abhorrent ultra-violet, you are simply renting the product. That’s what the studio wants. They want to be Gepetto and for you to be their puppet.

  7. JoelR says:

    I’ve ALREADY lost access to some movies via Digital, so Ren is on-target. Second rate picture and audio at a higher price…no wonder the studios love it. As for discs, the only reasons they are dropping in sales is because the industry has been trying to kill it for years. A) Having movies on digital but delaying the discs for a month or longer. B) Stripping rental discs of any and all features, leading many consumers to not notice any additional value in BD over streaming. C) Making discs unavailable for purchase at retail outlets (check out the weekly releases and then go to, say, your local Best Buy and see how many you can find).

    Streaming may be OK for the undemanding viewer as a higher-priced rental. But I’m with the posters below…if there are no discs, I just will no longer buy movies.

  8. Ren says:

    I agree, I prefer discs cause if you buy the movie digital, there’s a chance you lose access to your account and all that money is wasted. Also, downloading digital movies takes up a lot of space on hard drives and are only subject to a limited library.

  9. The day discs go away is the day I stop buying movies. I will NEVER pay for access to a streamed movie that can be taken off-line at any time for any reason (and this early-release scheme for a lot of recent movies isn’t going to help sucker me in.) Quality of streaming movies still can’t touch Blu-Ray anyways, and it’s useless for video-based material as it can’t deliver the full 30 frames per second that discs (and broadcast and cable TV) can.

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