In key international territories, digital home entertainment is taking off more slowly than in the U.S., but executives see momentum increasing as broadband speeds, the range of retailers participating in digital distribution, the penetration of digital devices and early electronic sell-through (EST) offerings all grow.
London-based Futuresource Consulting expects just 20% of consumer spending on video in Western Europe to go toward digital formats this year, compared with between 40% and 50% of spending on digital in the U.S. That trend is repeated across entertainment product categories, with just 7% of Western European book spending on e-books (38% in the U.S.); 36% of music spending on digital music (65% U.S.) and 40% of games purchased digitally (50% U.S.).
“The development of the digital business varies from market to market,” says Sony Pictures Home Entertainment president David Bishop. “For example, the Nordic territory is a market that overindexes in digital as compared to physical. Overall, however, the percentage growth rates are robust and have a similar trajectory to the U.S. once enablers reach a critical threshold.”
He adds, “Some of those digital enablers include increased broadband speeds, increased penetration of digital devices and the presence of retailers that are more active participants in digital distribution.”
Futuresource head of business development Alison Casey says other factors that will help grow digital consumption across markets include original content, like the programming created by Netflix and Amazon in the U.S.; exclusive windows, including early EST; and added premiums, such as iTunes extras.
As in the U.S., studios are ready to use early windows and other incentives to develop digital purchasing behavior in international markets, with numerous companies experimenting with the early release windows outside the U.S. Sony, for instance, has experimented with early EST releases in 19 countries.
“There’s a lot of excitement across Europe about what’s happening with Digital HD in the U.S.,” says Mike Dunn, worldwide president of 20th Century Fox Home Entertainment. Fox offers Digital HD movies for sale in more than 100 territories and reports experiencing double-digit growth.
“Digital platforms almost always want to launch in the U.S. first before moving into other territories,” says Disney exec Janice Marinelli. “It requires a lot of time and careful planning for these digital storefronts to launch effectively in any market and several factors have to be taken into consideration on a country-by-country basis, including the digital infrastructure, developing and creating a localized storefront, offering locally produced content and consumer education on the value of consuming digitally.
“That said, digital consumption is definitely growing quickly in Western Europe as evidenced by the recent success of iTunes, Netflix, Amazon and other global players across the region.”
No two territories are alike and there’s a wide variance in digital entertainment usage among countries, even in geographically compact Europe.
In the U.K., the region’s largest home-entertainment market, consumers spend an average of $167 per person annually for pay TV, video, games and music, according to Futuresource. That’s less than half the per-head spend of $390 in the U.S., but 20% more than in neighboring France.
“The U.K. is a very competitive digital landscape; there are lots of digital retailers … with different offerings,” including Apple’s iTunes, Amazon’s LoveFilm, Netflix, Sky Go Extra and Tesco’s Blinkbox, Casey says. The U.K. also has the highest smartphone penetration of the 17 countries measured by Futuresource.
Germany, by contrast, continues as a very strong market for packaged media, with Futuresource forecasting 31% growth in Blu-ray sales there this year, and only a 1% drop in DVD sales. “The German culture for collecting dates back to the VHS days and growth in digital is much lower than the U.K. or the U.S.,” Casey says.
Italy and Spain, meanwhile, continue to be challenged economically and that holds down spending on both physical and digital video formats, and is a factor in relatively high piracy rates.
“The U.S. still leads our worldwide business in digital consumption but we are seeing different international markets perform very well for many different reasons,” Sony’s Bishop says. “For instance, the U.K. has been a very strong EST market for us, largely propelled by early EST. Australia is also performing very well, with digital emerging alongside a very robust and stable physical business. And finally, France has seen great growth in the VOD segment.”