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Digital Boom Lifts Home Entertainment Spending

The options for consuming Hollywood’s creations at home are seemingly endless.

Beyond Netflix, there are Redbox rentals, Blu-ray discs, new services like FilmStruck, and extra-pixel-rich 4K Ultra HD options for purchase, plus yet more streaming offerings on Amazon and Hulu. Peak TV, box-office hits, and cinema esoterica are all just a click away. The format or streaming service is up to you.

These choices are good for viewers, and they’re lifting the home entertainment industry up again: Overall U.S. spending on home entertainment for the first nine months of 2016 was up 2.5% from the year-earlier period, to $13.1 billion, compared with $8.3 billion at the box office, according to trade group DEG: the Digital Entertainment Group.

That’s an even bigger lift than 2015, which finished the year about 1% above 2014, a year when spending was slightly down. Digital represented $7.5 billion, or 58% of spending through Sept. 30, 2016, a 15% gain year over year. Physical disc sales fell 7% during the same period.

The digital boom is driven by a growing comfort level with purchasing and watching video entertainment through internet channels. About 52% of U.S. households with internet access have at least one connected TV, consumer research firm NPD estimates.

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“Advances in technology have placed the consumer firmly in the driver’s seat,” says Mary Daily, president and head of worldwide marketing for 20th Century Fox Home Entertainment. “They expect quality content, simplicity of use, and great value.”

While online rentals and sales are growing, studios are generating their biggest chunk of digital revenue — about 60% for the first nine months of 2016 — from licensing deals with subscription VOD services such as Netflix, Amazon Prime Video, and Hulu.

And there is a growing number of niche streaming sites, including Turner’s FilmStruck, which offers exclusive access to Criterion Collection titles and hundreds of other indie, foreign, and cult films for $10.99 monthly, and Brown Sugar, a ’70s-era blaxploitation subscription VOD package from multicast broadcaster Bounce TV, for $3.99 per month.

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Within five years, the average American will be subscribing to two SVOD services, according to consulting firm Activate’s research. “Americans will become less interested in having any form of ownership (of movies or TV shows) because they believe they’ll be able to access titles on a subscription service,” says Activate CEO Michael Wolf.

With so many home-entertainment options just a click away, digital players such as Apple, Amazon.com, Walmart’s Vudu, Google Play, NBCUniversal’s Fandango and others are continually looking for new ways to stand out.

Apple, for example, tied into the digital release of “The Secret Life of Pets” with a Siri promo, its first for a movie. Universal prepared four mini-movies as bonus material for services including iTunes, Vudu, and FandangoNow.

“The recommendations on iTunes and other digital services make a huge difference,” Wolf says. “It’s like Walmart putting your movie on the shelf at the front of the store.”

Walmart has its feet in both worlds, thanks to its 2010 acquisition of Vudu. The retail giant, which remains one of the biggest sellers of DVDs and Blu-ray discs, is looking to further boost digital sales as well. When Walmart customers buy a physical disc with an e-copy associated with it, they can scan the receipt and instantly have a copy added to their Vudu library. In addition, Vudu now also sells discs on its iOS and Android apps, along with a digital copy.

“Consumers want convenience. They want to watch a movie whether it’s physical or digital,” says Jeremy Verba, VP and GM of Vudu. “Bridging those two worlds is critical.”

As options proliferate, consumers are changing the way they build their movie collections: Some will buy a title when it’s released in the EST (electronic sell-through) window, and then snap it up later on Blu-ray. “Sometimes people have two swipes at the same movie,” says DEG president Amy Jo Smith. “The lesson is, if you make the experience for consumers frictionless and easy — to let them find it on disc, on their set-top box at home, or in a digital storefront — they will transact on it.”

One growth area is 4K, a format that delivers four times the resolution of traditional 1080p HD. Vudu, for one, offers Ultra HD content from four studios — Warner Bros., Paramount, Universal, and MGM — and has seen 50% month-over-month growth in sales of 4K titles. Verba says in some cases, titles sell more than twice in 4K UHD as regular HD.

The number of Ultra HD 4K TV sets is still relatively small — as of the third quarter 9.9 million have been sold — but some consumers are preemptively buying 4K titles to “future proof” their collections. Thirty-eight percent of consumers surveyed said they are somewhat or very likely to use a 4K TV in the future, according to NPD’s Q3 2016 Connected Intelligence Home Entertainment Report.

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FilmStruck, a new subscription service, offers cult and classic movies, such as a collection of early Kubrick movies.

Google is now plunging into 4K movies: On Dec. 6, Google Play Movies & TV launched more than 125 titles in the format, including “Batman v Superman: Dawn of Justice”, “Ghostbusters,” “Mission: Impossible – Rogue Nation” and “Captain Phillips.”

Fandango is also moving to capture a bigger slice of the home-entertainment pie. Increasingly, it is looking to bundle together movie tickets with home-entertainment titles — offering discounted or free movie tickets to digital buyers, and special deals for those who see movies in theaters. For example, Fandango users who buy theatrical tickets to its sister studio’s “Sing” (premiering Dec. 21) will get a discount on a selection of other Illumination movies including “Despicable Me” and “Minions.”

“Our customers aren’t fans of platforms. They’re fans of movies,” says president Paul Yanover. “Our whole strategy is to super-serve moviegoers, and there’s no other brand operating in ticketing window and home-buying window.”

Subscription VOD is starting to encroach on the pay-TV window, as with Netflix’s deal for the U.S. with Disney. However, Wolf predicts that the ecosystem’s structure of theatrical and home-video windows will hold, despite Netflix’s push to release movies on its service the same day they bow in theaters. “This comes down to windows,” he says. “It’s not in the studios’ best interests to be beholden to Netflix.”

To DEG’s Smith, the home-entertainment market will continue to remain strong — as long as Hollywood keeps producing great product.

“People’s love affair with movies has never gone away,” she says. “What we always see is, if it’s great content, it’s huge. Let’s never get away from that.”

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