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Morgan Stanley: Blu-ray a ‘Net Positive’ for Home Video Industry

31 Jan, 2012 By: Erik Gruenwedel



Sales of Blu-ray Disc movies increased 11% in 2011, representing the lone bright spot for studios looking to restart sellthrough at a time of increasing low-margin rental options, according to a new Morgan Stanley note.

Blu-ray movie sales as a percentage of the top 50 titles released increased 660 basis points in the fourth quarter of 2011, compared with the same period in 2010. In other words, higher-margin BD movies represented 27% of the top 50 sellthrough titles in Q4, compared with 25% in Q3, 24% in Q2 and 22% in Q1.

Indeed, Blu-ray Disc sales for the first time reached $2 billion in revenue in 2011 -- ahead of transactional video-on-demand at $1.87 billion, according to DEG: The Digital Entertainment Group.

Morgan Stanley analyst Benjamin Swinburne, who wrote the note, said Blu-ray helped the home entertainment industry absorb shuttering brick-and-mortar video stores, in addition to declining DVD sales.

Unfortunately for studios, consumer migration away from sellthrough and higher-margin rental is a net negative to profitability, given the growth in rental is coming from lower margin channels such as kiosks and subscription video-on-demand, according to the analyst.

Meanwhile, electronic sellthrough increased 9% in 2011 from 2010, while increasing 15.5% in Q4 from the previous-year period. Swinburne had projected 22% sales growth in 2011.

The EST increase was primarily due to iTunes sales, underscoring Swinburne’s belief that digital sellthrough and UltraViolet (“still light years away”) remain underwhelming consumer options.

“We believe that consumers will continue to migrate to rental transactions (vs. sellthrough), due to the economy, convenience of kiosk and subscription channels, and an overall maturation of physical DVDs,” Swinburne wrote. “We see growth in high margin Blu-ray sales as a net positive for the industry, and continue to look for Blu-ray and digital distribution to help offset declines in physical DVD sales.”


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