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Analysts: Profit Still in Physical Media … For Now

10 Dec, 2013 By: Chris Tribbey

(L-R): Jim Bottoms, Audra Priluck, Mark Kirstein, Chad Andrews, Ben Spergel and Tom Adams at Forecast:Hollywood Dec. 10.

BEVERLY HILLS, Calif. — Tom Adams, senior principal analyst of U.S. Media for IHS Screen Digest, Dec. 10 shared one of his favorite terms regarding content: “Why deliver atoms when you could deliver bits?”

He heard the term more than 15 years ago, and while it’s cute, the facts for content delivery in 2013 remain the same.

“The profits are happening in the atoms,” he said, speaking at the Forecast: Hollywood event, which gathered the industry’s top analysts to discuss what they see in the entertainment space.

Disc-player penetration is at 82% and the physical share of home entertainment spending hovers close to 75%, Adams said. Still, things are changing.

“Pay-TV has gotten just dramatically better in the last few years,” he said, adding that tablets have given consumers the equivalent of a portable TV.

UltraViolet has allowed physical media “to stay in the game,” Adams said, and while physical media won’t again see “the glory days of 2000 to 2004, UltraViolet is the studios’ sign to consumers they’re coming into this digital world with you.”

“That’s why combo packs are proving to be hugely popular,” Adams said. “You get it all.”

Mark Kirstein, president of entertainment for The NPD Group, said awareness of UltraViolet is still low — about 18% of consumers — but “those who are using it are the most lucrative consumers,” the ones buying physical disc, he said. Of those using physical disc, 29% are buying more discs, NPD data shows.

Kirstein added that subscription VOD is seeing the largest gains in the digital space, pointing specifically to Amazon Instant Video, with transactional VOD also growing.

“The consumer really is in control right now,” said Ben Spergel, SVP of TV strategy for Interpret. “They have expectations and demands.” His firm’s data shows an acceleration of “this cord-cutting mentality going on,” with almost half of consumers actively streaming content online.

“We are in an evolution, we are in a revolution, but we are in the early stage, where everything is working together nicely,” he said. “Five years from now?”

Chad Andrews, associate partner of media and entertainment for IBM, said that while “the industry is at a crossroads,” studios would be wise to accept new mediums for their content. New mediums didn’t damage theatrical revenues in the 1980s; they won’t kill them today either, he said.

“I believe the industry should embrace new business models,” he said. “It’s time for us to get a better understanding of what consumers want.”

Pay-TV companies are trying to adjust with the advent of TV Everywhere options for their subscribers, but “awareness of the term is going nowhere,” according to Audra Priluck, VP of media and entertainment for GfK Custom Research North America. She said only about a quarter of pay-TV subscribers even know the term.

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