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Disc Sales Decline Deepens in Annual Home Entertainment Spending Report

U.S. physical disc sales and rentals plummeted in 2017, proving once again that streaming is king, according to preliminary figures released Tuesday.

The report by trade organization Digital Entertainment Group (DEG) offers a renewed reminder to studios that consumers are increasingly eschewing ownership of movie titles in favor of subscriptions to services like Netflix and Hulu.

Disc sales were down 14% last year, falling to $4.7 billion, just one year after registering a decline of nearly 10%. The drop for physical rentals was even more pronounced. Brick-and-mortar rentals and kiosk rentals declined a combined 17%, falling to just over $2 billion.

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.

After eclipsing disc sales for the first time in 2016, subscription streaming numbers gained even more ground last year, expanding by more than 30%, to $9.5 billion. DEG redefined subscription streaming this year beyond Netflix to include an expanded, unspecified list encompassing Hulu, Amazon, HBO Go and CBS All Access.

In all, DEG says that total U.S. home entertainment spending amounted to $20.5 billion, a rise of roughly 5%, masking the steep declines in physical and digital sales and rentals.

DEG’s report has been the target of criticism in the past because it counts SVOD in overall U.S. home entertainment spending. Disc revenues, after all, have been cannibalized precisely because of subscription streaming, which provides a much lower margin to the studios.

The data is likely to renew pressure on studios to adjust theatrical distribution windows, particularly since the 2017 box office was down from the year before and saw fewer moviegoers. The domestic box office totaled $11.1 billion, roughly a 2% decline from the year before.

The report also contained a new trend for 2017: Spending on video-on-demand – digital rentals offered by cable companies – dropped nearly 7% to $1.9 billion. In 2016, VOD spending grew from the year before. Unlike last year, when VOD numbers eclipsed the digital sales of titles — consumers spent slightly more to own titles digitally as opposed to renting.

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.

DEG also touted the growth of 4K HD products, reporting that nearly 15 million 4K HD TVs were sold last year. DEG reports that 4K HD titles grew to 267 and accounted for $147 million in sales.

The best-selling titles of 2017 included “Moana,” “Rogue One: A Star Wars Story,” “Beauty and the Beast,” and “Wonder Woman,” but no specific numbers were provided.

 

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