New releases have always been the lifeblood of the home entertainment business, and in the digital era they are lending particular vigor to the electronic sell-through (EST) sector. In the first nine months of this year, consumer spending on digital purchases of theatrical new releases climbed 88% over the same period in 2013, according to DEG: The Digital Entertainment Group. That’s a growth rate more than five times faster than consumer spending on digital formats overall (including all electronic sell-through, streaming and video-on-demand).
EST arguably moved into the mainstream last year, when consumer spending on digital purchases of movies and TV shows topped $1 billion for the first time. In 2014, EST spending crossed the $1 billion mark by the end of September, putting $1.5 billion within reach for the year, fueled by consumer demand for an increasingly wide range of new releases.
“Digital ownership has moved beyond popularity with early adopters alone. EST transactions have grown markedly in the past year to 18 months, with strong performance across genres, including comedy, action adventure and drama,” says Jason Spivak, exec, VP digital distribution, for Sony Pictures Home Entertainment. He says family films “Cloudy With a Chance of Meatballs 2” and “Heaven Is for Real” have been digital standouts for the studio, in addition to more traditional-skewing titles such as “The Amazing Spider-Man 2” and “22 Jump Street.”
“Three of the five top-selling new release EST titles of all time are family (films), including ‘Despicable Me 2,’ which is Universal’s largest EST title by a wide margin — selling well over five times what the first ‘Despicable Me’ sold a few years ago,” says Michael Bonner, exec VP, digital distribution, Universal Pictures Home Entertainment, underscoring the broadening appeal of EST.
“The overall growth of digital this year is very exciting, and we have had some breakout successes, including ‘Frozen’ becoming the best-selling digital title of all-time” in the U.S., adds Janice Marinelli, prexy, Disney/ABC Home Entertainment and Television Distribution. She also noted the strong performances of actioners “Thor: The Dark World,” “Captain America: The Winter Soldier” and “Guardians of the Galaxy.”
Digital rental transactions, including subscription streaming and transactional VOD, remain larger businesses than EST, in part because they have been more widely available and cost less than digital purchases. VOD has experienced declines in consumer spending every quarter this year, however, and subscription streaming generally does not offer new release movies.
Studios are most aggressively throwing their marketing muscle behind turning consumers into digital collectors, understandably making the development of higher-margin digital purchases their top priority. Their efforts, in conjunction with market dynamics including the continued growth of connected devices, are fueling overall EST growth of 33% through the third quarter, according to the DEG.
“We’ve seen extremely strong growth in EST. For new releases, we’re consistently generating one EST transaction for every three VOD transactions within storefronts both selling and renting titles,” says Universal’s Bonner. “Across the industry, the steady implementation of early EST windows for new-release movies and lower EST pricing have been key drivers of this momentum, bolstered recently by increased commitment of retailers like Comcast.”
Early windows are the most visible factor to date in driving consumer adoption of EST. Most studios continue to experiment with different lengths of early EST windows, in which titles are made available for purchase digitally before they are available for rental or for sale on DVD or Blu-ray, though most fall in the range of one to four weeks. Earlier this year, Universal tried a six-week EST window for its comedy “Neighbors,” for instance.
“We have definitely seen an uptick in digital purchases driven by early release windows, as well as an increase in family purchases,” says Dennis Maguire, president of worldwide home media distribution at Paramount Pictures. “Moms and dads are embracing the ease of digital purchases and the benefits of being able to watch on a variety of portable devices,” he adds, noting Paramount’s release of “Teenage Mutant Ninja Turtles” on digital just before Thanksgiving and three weeks prior to DVD and Blu-ray.
The efforts of content owners and digital services to turn movie lovers into digital collectors don’t stop at early windows. Extra content and bonus features previously found only on DVD and Blu-ray are poised to become a driver of EST sales in 2015 and beyond, executives believe, as efforts across the industry begin to focus on improvements in product and consumer experience.
Sony’s Spivak notes, for example, that iTunes Extras 2.0 now reaches all iTunes devices, underscoring the importance of extras to the industry and consumers.
A spot check of leading digital services including iTunes, Walmart’s Vudu and Target Ticket, shows a wide range of new releases available with bonus features. In addition, many titles are available for pre-order or in discounted bundles with related or similar titles — all benefits consumers long ago came to expect with packaged media.
Comcast, which launched its Xfinity Digital Store a little over a year ago, recently added a pre-order feature, long a staple of packaged media retailing, to its digital service.
“Just last month, in partnership with Lionsgate, we offered Xfinity TV customers the ability to pre-order a digital copy of ‘Mockingjay — Part 1,’ ” says Nancy Spears, VP of digital media distribution and monetization for Comcast Cable.
A number of digital services are also offering “The Hunger Games: Mockingjay — Part 1” for pre-order, and are already promoting the fact that it will come with bonus features.
Gift-giving is also a growing opportunity for digital, with Disney, for example, working with several digital services to offer more than 20 family titles at a discount during what it’s calling “Disney Dream December.”
“We believe that the holiday season and gift-giving are great opportunities to promote growth within the digital space,” says Disney’s Marinelli. Disney has especially been pushing digital with its Disney Movies Anywhere platform, which is now backed by iTunes, Google Play and Vudu.
“We need to continue to educate the consumer on EST and the value of that content anywhere and on any device,” says Bill Clark, Anchor Bay Entertainment president.
“Our efforts over the last four or five years have been to make the consumer proposition as compelling as it can be digitally, so that they never have to buy a movie twice and have all the rights of ownership that they do physically,” says Thomas Gewecke, chief digital officer and exec VP, strategy and business development, Warner Bros. Entertainment.
In a demonstration of consumers’ growing acceptance of EST, Comcast Cable is seeing its customers making multiple purchases, and watching them multiple times. “For example, 42% of our customers who own a movie or TV show on Xfinity own more than one,” says Spears. “And on average, they own two movies and/or 4½ TV episodes. Plus, once purchased, our customers are watching their titles multiple times.”
Analysts expect EST growth to continue through at least 2018, fueled by early windows, bundling and bonus features in addition to the growth of connected devices such as smart TVs, streaming media players, game consoles and set-top boxes.
As for the more immediate future, “We expect strong growth in the fourth quarter, driven by the digital release of some of the year’s top movies, more compatible devices reaching consumer hands and unique seasonal promotions and offers,” says Jonathan Zepp, head of Google Play Movies partnerships. “We have been effective at transitioning end of year growth into momentum for the next year and we expect to see that same trend this year.”
“This holiday season will continue to see an explosion of digital devices being activated, with nearly 20 million expected to be opened on Christmas morning, all with the ability to purchase and enjoy the latest and classic digital HD movies,” says Mike Dunn, worldwide prexy at 20th Century Fox Home Entertainment, which last month had its biggest digital HD release ever with DreamWorks Animation’s “How to Train Your Dragon 2.”
“Digital HD has redefined digital ownership by playing to the mobility of our digital lifestyles in an affordable and convenient way for the consumer,” Dunn says.