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Digital Doesn't Break Disc

15 Jul, 2008 By: Thomas K. Arnold

Analysts may think packaged media is going down the tubes because of digital downloading, but sales and rental data show the home video industry is holding up remarkably well despite the down economy, the high price of gas, piracy and any consumer shift toward the Internet.

Consumer spending on DVDs and Blu-ray Discs in the first six months of this year, purchases and rentals combined, was up about 1.6% from spending in the first half of 2007, according to Home Media Magazine's market research department. The first-half 2008 tally: $10.77 billion, compared to $10.6 billion in the first six months of 2007.

Spending on disc purchases rose 1.1%, from $6.8 billion to $6.87 billion. Rental spending rose 2.6% to $3.9 billion from $3.8 billion in the first six months of last year, according to Home Media Magazine market research calculations.

Unit sales were up a healthy 1.1% as well, with consumers buying an estimated 412.3 million discs in the first six months of this year, up from 407.9 million discs in the first half of 2007, according to studio reports.

Home entertainment industry analyst Tom Adams isn't surprised about the continued health of the packaged-media business, despite Wall Street's negative perceptions. “Most analysts are techno-geeks with plenty of money and not much time, while most Americans are not technically savvy, and they have plenty of time but not much money,” said Adams, president of Adams Media Research. “The fact is, despite what many on Wall Street seem to think, there is very little digital downloading going on. We're talking about $118 million in 2007 spending, and about $254 million this year — so against a $24 billion packaged-media market it's really not making much of a dent at this point.”

Blu-ray Disc sales alone should amount to at least three times what digital downloading is expected to bring in this year, studio executives say. In the first six months of 2008, consumers spent an estimated $194 million on Blu-ray Disc purchases, according to studio estimates — a gain of nearly 350% from the $43 million that came from high-definition disc sales the first six months of 2007, when growth was stymied by a format war between Blu-ray Disc and HD DVD. The format war ended Feb. 19 this year, when chief HD DVD backer Toshiba Corp. officially bowed out.

Unit sales of Blu-ray Discs in the first half of 2008 were up 340% from the first six months of 2007, according to Nielsen VideoScan data. Nielsen numbers are based on point-of-sale data from most big retail chains with the notable exception of Wal-Mart and Sam's Club. Factoring in Blu-ray Disc sales at those two retail chains, studio estimates peg the number of Blu-ray Discs sold in the first six months of this year at 7.37 million units.

Adams said he expects the packaged-media business to be more resilient than other businesses during tough economic times. He notes that in the early 1990s, the last time the country faced a recession, the video rental business held its own. Today, the home entertainment business relies mostly on sales rather than rentals, he said, “so the question is will the $15 movie be as recession-proof as the $3 rental was in the last serious recession. And why wouldn't it be? When you're cutting back on luxury items, like trips to Hawaii and Europe and lots of other stuff, because of the high price of gas, buying a $15 movie to watch over and over and add to your collection seems a great alternative to more expensive entertainment.”

Taking a look at the entire home entertainment business, DVD and Blu-ray Disc sales and rentals combined, Warner Home Video, as usual, snagged the top spot in the first-half 2008 market share derby. The studio accounted for 20.4% of total consumer home entertainment spending, both with its own hit titles such as I Am Legend and with distributed product from HBO and New Line; 20th Century Fox Home Entertainment came in second, with an estimated market share of 15.7%.

The year's top-selling DVD, Fox's Alvin and the Chipmunks, sold about 5.3 million units, according to Home Media Magazine market research estimates. Figures do not include sales to rental dealers, which can boost total unit sales significantly. In all, Alvin has sold more than 7 million DVDs.

I Am Legend is the top-selling high-def disc release of the year, with unit sales of 305,000. Next comes National Treasure: Book of Secrets, with unit sales of nearly 145,000, followed by No Country for Old Men (137,000 units), No. 3; Warner's Blu-ray Disc release of 300 (133,100), No. 4; and 3:10 to Yuma (115,000), No. 5.

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