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Business Diversifies to Move Up

6 Aug, 2012 By: Stephanie Prange

Consumer spending on home entertainment is growing despite the economic headwinds, according to the latest first-half numbers from DEG: The Digital Entertainment Group, but home entertainment is a multifaceted business. It encompasses physical rental and sellthrough spending and digital spending on subscriptions and individual title rentals.

Certain sellthrough segments are growing, such as Blu-ray Disc sales and electronic sellthrough (EST), albeit coming off a very low base and boosted by Walmart’s disc-to-digital conversion (those $2 and $5 fees consumers have been paying to get digital copies of their disc libraries).

Meanwhile, subscription (Netflix) and kiosk (Redbox) rentals continue to grow, taking over a market, for the most part, ceded to them by brick-and-mortar stores.

Digital is making strides in both rental and sellthrough, which shows the business is moving into the virtual world on both fronts. It is particularly important that EST is starting to make it off the mat, thanks in large part to the boost from UltraViolet.

Packaged-goods sellthrough — a particularly profitable segment for the studios — is holding up pretty well, down 3.6% in the first half from the same period of 2011. Adding in EST — also a studio priority — sellthrough is down less than 2%. As UltraViolet conversion gains momentum, EST may prove an even bigger boost to the all-important sellthrough business in the future.

While growth in consumer spending on home entertainment is always encouraging, having stability or growth in diverse markets — sellthrough, digital and rental — is key to the overall market’s health. The fact that that’s happening shows consumer spending on home entertainment is on more solid ground.

It has often been said that the entertainment pie grows even as new businesses — from television to VHS to DVD to rental and digital — each take a slice. Recent DEG numbers seem to show that may indeed be the case in the multi-slice home entertainment market.

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