Log in

Blu-ray Thrives, Despite Growing Digital Bandwagon

10 Jan, 2011 By: Erik Gruenwedel

Blu-ray Disc movies and players emerged home entertainment (and hardware) champions in 2010, notwithstanding the onslaught of transactional video-on-demand platforms.

Blu-ray Disc was the fastest-growing home video medium last year. Blu-ray and other packaged media represented nearly 88% of all media consumed in 2010, with all forms of electronic distribution comprising the remaining 12%, according to Screen Digest.

2010 also saw the bow of transactional VOD services by Sears/Kmart, Walmart via acquisition of Vudu, Dell, HP, revamped Apple TV and Best Buy’s CinemaNow, on top of previous options Blockbuster On Demand, Amazon VOD and iTunes, among others.

Yet, since 2009, when the ratio was 90% disc and 10% digital, electronic distribution's overall market share has grown only about 2% year-over-year. Indeed, digital revenue reached $2.5 billion last year, up $400 million from 2009, according to DEG: The Digital Entertainment Group. Blu-ray software revenue increased $600 million to $2.1 billion, which represented a 15% surge above digital’s growth.

“Despite all the hype and dire predictions that we on the packaged media side would be out of business by now, these results suggest that Blu-ray will be around for many years to come, coexisting nicely with online channels,” said Andy Parsons, SVP of corporate communications and new product planning for Pioneer and chair of the Blu-ray Disc Association promotion committee in the United States.

IHS Screen Digest's preliminary year-end numbers showed that Blu-ray movie sales grew by 75% in units over 2009. The number of Blu-ray households grew 57% to 25.4 million in the United States, representing more than 20% household penetration (including multiple player households).

“If we're comparing apples to apples, Blu-ray movie sellthrough and percentage increase is significantly higher than electronic sellthrough, since VOD is really more of a rental model,” Parsons said.

Tom Adams, director & principal analyst, U.S. Media IHS Screen Digest, said Blu-ray remains on track to supplant DVD, albeit with a smaller market size. Adams said Netflix streaming, DVR and free VOD on pay TV are undermining physical media; transactional VOD is not. He said the current TV experience for the end-user has become more “video rich,” convenient and with lots of content available in high-definition.

“People don’t live in fear of not having something good to watch tonight if they don’t hit up the video store on the way home,” Adams said. ‘That’s why we aren’t seeing digital make up for the decline of physical consumption.”

He believes cloud-based digital locker UltraViolet has the ability to upgrade the physical market when it takes off.

“The idea that buying content on Blu-ray allow you to view it on any device you own today or buy in the future adds a lot to the value of buying a Blu-ray Disc movie,” Adams said.

Eric Wold, analyst with Merriman Curhan Ford in New York, said data supporting consumer preference toward physical over digital movie consumption underscores an entrenched disc rental mindset in the current economy.

“It will take some time before digital becomes a larger part of their spending,” Wold said. “Not only are the price points for Blu-ray rental more attractive than digital rental, but consumers are likely still hesitant to increase purchases of digital content with the inability to [keep] the product, especially if they do not understand the concept of digital lockers.”

Blockbuster stores, and most independents, match kiosks and undercut transactional VOD rental pricing. Wold said the video quality of Blu-ray exceeds digital, especially given bandwidth speeds of some households, and offer special features that may not be available through digital.

Frost & Sullivan analyst Dan Rayburn, who is also EVP of StreamingMedia.com, said Blu-ray player sales haven’t done much more than scratch the surface of their potential, considering unit sales in previous years did not include Internet connectivity and third-party apps. As Blu-ray players become more connected and CE manufacturers layer on additional applications — such as Vudu, Netflix and Blockbuster On Demand — prices decline, and sales will go further up.

“I was at Costco the other day and they had a Sony Blu-ray player for $89,” Rayburn said. “I think the real surge on disc sales is going to happen when disc prices come further down.”

Stephen Baker, VP of industry analysis with Port Washington, N.Y.-based The NPD Group, said the Blu-ray player was a relatively under-penetrated category during the winter holidays, with pricing (less than $100), bundling with HDTV purchases and updated features (Netflix, YouTube, Blockbuster, etc.) recognized by consumers.

“We’ll see if that trend continues in 2011,” Baker said. “It gets harder to grow as more competing devices enter the market with the same features such as Pandora and Netflix. As more and more connected TVs get these services, I wouldn’t be un-confident regarding Blu-ray player growth this year. But I don’t think success is guaranteed.”

Rayburn said Blu-ray movie sales would not emulate DVD in its heyday, a comparison he calls unfair, considering the market and technological advances affecting consumer behavior. He also said buying new-release movie downloads is pointless, since consumers can often buy the Blu-ray for $15 and DVD for $10.

“Why would I buy a digital copy for $20?” Rayburn asked.

He said despite the advent of myriad transactional VOD services, including aggressive cross-promotions of the “virtual video store” by cable and satellite TV operators, no studio has gone public with actual unit sales and revenue generated compared with physical.

“None are willing to say how many movies they have rented, ever,” Rayburn said. “And that is because the numbers are so low. I don’t think that is a bad thing because it is a new industry. But the fact [that] they don’t want to release any data just shows the concern there is regarding how low it is.”

Rayburn said consumers are not necessarily looking to buy more discs; they are interested to find out more about digital. Since Blu-ray players (and most media players) do not have a hard drive, they represent growth vehicles for rental streaming. He said most consumers remain a hybrid user: occasionally purchasing and at other times renting. He said the Blu-ray player allows them to get their feet wet with digital content.

“To me, that is really the win in the long run,” he said. “Blu-ray Disc sales will grow, but Blu-ray is really an enabler for digital.”

Bookmark it:
Add Comment