Total U.S. home entertainment spending for the first half of 2009 slipped just 3.9%, according to DEG: The Digital Entertainment Group, with a still steep decline in DVD sales being largely offset by growth in Blu-ray Disc sales, packaged media rental and electronic distribution.
DEG sized the entire pie at $9.73 billion for the half, including $3.4 billion in DVD and Blu-ray rentals, which were up 8.3%; $968 million in digital sales and rentals, including cable and satellite video-on-demand, up 21%; and $5.4 billion in DVD and Blu-ray sales, off 13.5%.
Blu-ray sales, which were up 91% to $407 million, offset declines in the studios’ core DVD sales business, which at slightly less than $5 billion for the half, was off in the neighborhood of 17%, according to Video Business calculations. DEG did not break out DVD sales in its announcement.
Studio consensus is that the recession continues to dramatically impact consumer disc spending, pushing people to rent rather than make the relatively more expensive purchase.
Studios and retailers continue to grapple with a home entertainment industry in transition to new formats, including Blu-ray and digital downloads and streaming in the midst of the worst U.S. recession in decades.
New release DVD and Blu-ray sales were down significantly in the first half, estimated Sony Pictures Home Entertainment president David Bishop. At the same time, DVD rental machines are on a giant upswing, with Redbox slated to soar from 14,000 current locations to 22,000 by next year.
“People are trying to save money, and there is strong evidence that consumers are trading down. They are renting instead of buying,” said Bishop. “That is the growth category now in DVD.”
Redbox and other $1 per night kiosks are fueling the growth in the rental market, with consumer spending in the channel up more than 150% in the first quarter, according to Rentrak.
That anticipation of lower revenue from titles has led studios such as Sony to adjust downward their projections on how theatrical films will play on shelves. However, regardless of their economic situation, consumers are devouring adult comedy, action-heavy and cult fan titles.
“We are down somewhere between 15% to 20% from last year, so that becomes your baseline for films going forward,” said Bishop. “R-rated comedy, cult-fan base and action-adventure films seem to be less susceptible. It’s not immune to the downturn, but relative to other categories, it is.”
Sony found this to be the case with May 12 hit release Underworld: Rise of the Lycans, as it sold at a pre-recession rate.
“That really performed at historical levels,” added Bishop. “And it was able to do this with DVD/Blu-ray sales down as much as 20%.”
Warner Home Video also has generated hit titles in a tough economic climate, believing that consumers continue to be motivated by hot content.
“When it comes to DVD product and consumer appetite, we have seen a strong uptick in rentals, and big titles like Gran Torino have outperformed on DVD and Blu-ray,” said Warner president Ron Sanders. “This seems to indicate that consumers are directing their entertainment dollars towards quality, an understandable and quite natural reaction to the current economy.”
20th Century Fox Home Entertainment president Mike Dunn said that budget-conscious consumers are grabbing titles at retail more slowly than in years past, but eventually, many of the studio’s titles are hitting their sales targets. March 31 title Marley & Me and May 12 title Taken are expected to each sell 5 million units, exceeding the studios’ expectations for the movies by more than 15%.
Studio execs are encouraged by Blu-ray’s continued momentum, with software sales about double what they were at the half-way mark in 2008. This strength comes even as Blu-ray still carries a price tag premium over standard-definition DVD.
“Last year, about 8% to 10% of our title copies were on Blu-ray, and now that’s up to 10% to 15%,” Lionsgate president/chief operating officer Steve Beeks said. “There is growth in the Blu-ray marketplace.”
Blu-ray’s sales trajectory beats most other products in the general marketplace, note studios. Videogames, which have been retail’s golden child for the last couple of years, have stalled as once red-hot consoles such as the Wii have matured.
“The only other product category with [Blu-ray] growth might be smart phones,” said Dunn.
Blu-ray catalog is also on the move, as Warner reports an 80% climb in its theatrical library sales in the format over last year.
Rising digital revenue is offering another silver lining to the cloudy economy, as Web-enabled TVs, Blu-ray players and game consoles are offering increasing numbers of ways for consumers to stream and download studio films for playback on television sets. Lionsgate reports that people downloaded its movies 1.5 million times in the first half of the year, generating a 92% jump in revenue over the same frame in 2008.
“There are more devices getting movies to the TV, and we are focused on uploading as many of our 12,000 library titles as we can” for downloading/streaming, said Beeks. “The overall consumer appetite for movies continues to grow.”
Also within emerging technologies, cable/satellite video-on-demand is delivering new revenue streams for studios. Fox reports that Bride Wars generated a healthy $15 million in revenue alone for cable/satellite VOD.
Studios are upbeat that this fourth quarter will represent a dramatic turnaround for the business, taking into account its growth areas such as Blu-ray and digital. A steady stream of summer theatrical blockbusters, including Star Trek, Transformers: Revenge of the Fallen and Harry Potter and the Half-Blood Prince, bodes well for their DVD releases in the last part of 2009.
Dunn believes the October-November frame will show improved consumer spending over the comparable period in 2008.
“The table is set for the future, where the industry has done a nice job in building the infrastructure to re-take the category probably by the fourth quarter,” said Dunn. “The world fell apart for the consumer last year, and they re-aligned their habits. But the table is set for the future.”