If the studios are looking for a fresh reminder of their pressing need to adjust theatrical distribution windows, the figures released Friday on U.S. home entertainment spending for 2016 are just the thing.
Two unprecedented trends emerged in the annual numbers reported by the Digital Entertainment Group, a trade org that collects the numbers from studios and retailers on a quarterly basis, that cast a dark cloud over the future of ownership of packaged video content, both physical and digital.
The first is that disc sales were eclipsed by subscription streaming numbers for the first time ever. The $5.4 billion in disc sales fell well short of the $6.2 billion tabulated from SVOD providers like Netflix.
The high margins of disc sales, which are traditionally the biggest revenue stream for what the DEG describes as “U.S. home entertainment spending,” had been a big but rapidly declining contributor to studios’ bottom lines.
Disc sales were down nearly 10% versus 2015 while subscription streaming surged almost 23%. Interestingly, however, the latter figure represents a cooling off from back-to-back 25% levels of growth in this category going back to 2014. While that might represent a maturation of SVOD consumption in the U.S., the reporting of this category by the DEG is likely dramatically undercounting considering the figures do not include what is probably the second biggest revenue contributor to subscription streaming, Amazon Prime.
However, that SVOD is among the revenue streams counted by DEG as U.S. home entertainment spending at all has always been a source of criticism for several reasons, primarily because disc revenues are being cannibalized precisely because of subscription streaming, which provides a much lower margin to the studios.
DEG tried to put a positive spin on the numbers by noting that the total U.S. home entertainment spend is up 1.36% to $18.3 billion versus 2015, which saw a lesser increase over 2014. But when subscription streaming is pulled out that number falls to just over $12 billion–a 6% decrease versus the previous year.
The second big change in this year’s numbers may be even more disturbing to the studios. For the first time ever, spending on electronic-sell-through, or EST, which totaled just over $2 billion, was edged by VOD by just $67 million.
Once propelled by the push of an early window marketed in recent years by the studios as Digital HD, EST platforms like iTunes grew just 5.4% over 2015–a dramatic drop from the 18% growth of 2015 and 30% rate of 2014.
EST was supposed to be the place where the industry converted former fans of discs to a style of digital ownership where viewers could easily download titles from the cloud through initiatives like the Ultraviolet system. But the growth of VOD is a sign that the rental model for single title transactions is persevering on digital too.
DEG also touted the growth of 4K HD products and named “Deadpool,” “Finding Dory” and “Zootopia” among the hottest selling titles of the year, but did not provide specific numbers.
The declining home entertainment industry has been cited by studio chiefs recently as an impetus to reconfigure how quickly theatrical movies segue to availability in U.S. homes via streaming.