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The Disc at 20: Packaged Media Resonates in a Digital Age

27 Mar, 2017 By: Stephanie Prange, Erik Gruenwedel

In an era of digital distribution and streaming video, the DVD and Blu-ray Disc aren’t the home entertainment stars they once were.

Yet, as the optical disc celebrates its 20th anniversary — DVD was launched in North America in March 1997 — packaged media continues to attract consumers domestically and abroad.

Disc sales accounted for nearly 60% of U.S. home entertainment revenue in 2016, with support for new format 4K Ultra HD Blu-ray strong, according to DEG: The Digital Entertainment Group. Combined DVD and Blu-ray Disc sales in 2016 topped $5.43 billion.

“With discs still accounting for the lion’s share of home entertainment spending, as evidenced by the more than 465 million physical transactions recorded last year in the U.S. alone, the format remains exceptionally vibrant and viable,” said Eddie Cunningham, president of Universal Pictures Home Entertainment.

Compact quality for collectors

The disc’s compact size, sellthrough price, picture and sound quality were a revelation for collectors at launch and continue to draw them to physical media.

“For in-home viewing, the disc format provides superior image and sound quality, immersive special features, interactivity, convenience, portability and affordability,” said Bob Buchi, president of worldwide home media distribution for Paramount Pictures. “We’ve come a long way since the ‘be kind, rewind’ days and it’s no wonder that 20 years later, the disc remains so popular with consumers.”

“The launch of DVD 20 years ago created a new consumer products category by enabling consumers for the first time to affordably collect their favorite entertainment content in a format that provided the single best experience at the time in terms of sight, sound, interactivity and versatility,” said Amy Jo Amy Jo Smith, president of the DEG.

“The disc format greatly expanded the sellthrough sector and remains a major segment of the industry,” added Mark Fisher, president and CEO of the Entertainment Merchants Association.

“Physical continues to be a very vibrant, viable and top-performing line of business for us as our customers have consistently demonstrated that they want to own Disney/ABC’s stellar slate of movies and TV shows, enjoying them over and over again,” added Janice Marinelli, president of Disney/ABC Home Entertainment and Television Distribution.

TV product also became enormously more collectible via the disc, which allowed whole seasons and series to be packaged in a neat box. At one point, the TV-on-DVD category generated $4 billion in annual sales. TV-on-DVD also set into motion the binge-watching habit that has been largely responsible for Netflix’s meteoric rise.

Today, “the physical media is still an important segment of the home entertainment business worldwide,” said Sofia Chang, EVP of worldwide digital distribution and home entertainment for HBO. “There are growth opportunities with next-generation formats, and franchises like ‘Game of Thrones’ continue to sell at record-breaking volumes.”

TV series such as “Downton Abbey” are top sellers at PBS Distribution.

“The disc format continues to have a vibrant impact on the home entertainment market through new high-def formats, compelling programs at retail and by ensuring consumer choice, which continues to show strength through a diversified revenue portfolio,” said Andrea Downing, co-president of PBS Distribution. “For PBS Distribution, we continue to grow revenues across the multi-format, multi-distribution landscape offering our consumers a deep catalog of programs to enjoy.”

A legacy that changed the business

Warner Home Video’s Warren Lieberfarb, considered the “father of DVD,” and Sony Pictures Home Entertainment’s Ben Feingold — along with their executive teams — led the charge for the new disc two decades ago, giving the industry the most successful product ever launched. It’s a legacy both studios embrace today.

“Warner Bros. is very proud of the leadership role we had in pioneering the DVD disc,” said Ron Sanders, president of Warner Bros.

Worldwide Home Entertainment Distribution. “The DVD proved to be a revolutionary product that ushered in an affordable way for consumers to build their home entertainment libraries. Further improvements in the home theater experience launched Blu-ray, 3D Blu-ray and now 4K Blu-ray with each new format reflecting advancements in technology and the consumers demand for the highest quality. The disc has epic endurance.”

“SPHE is proud to have been among the first studios to launch DVD, Blu-ray Disc and Ultra HD Disc,” added Man Jit Singh, president of Sony Pictures Home Entertainment. “Today, while the landscape continues to evolve rapidly, physical sales still constitute the lion’s share of home entertainment revenue.”

Indeed, it was a launch that grew — and continues to buttress — content suppliers’ bottom lines, and offers the additional opportunity of exploring the filmmaking process through extra features.

“DVD and Blu-ray revolutionized home entertainment, and they remain strong revenue drivers that are still positioned at the forefront of consumer transactions today,” said Ron Schwartz, president of home entertainment at Lionsgate. “As entertainers, the format has given us the opportunity to bring more value to the home viewing experience, and it has expanded the palette for our filmmakers as well.”

Extras created a new job description for those who created the special features, including Charles de Lauzirika, who became one of the industry’s top DVD and Blu-ray Disc producers.

“DVD changed not only how films and other entertainment were presented, with improved picture and sound quality, but also how they were made, revealing the tricks of the trade through in-depth bonus features, empowering others with the insider knowledge to do it themselves,” de Lauzirika said.

A retail juggernaut

The disc became a game-changer for retailers as well, offering mass merchants such as Walmart and Target some Hollywood pizzazz for the store aisles as they became top sellers of discs. They used discs of top movies and TV shows as attractive loss leaders, drawing consumers to stores. Meanwhile, web goliath Amazon embraced discs alongside books as top collectible items online, as discs, like books, could easily be shipped to eager consumers. Rental, too, found a friend in disc, especially through Redbox, which was able to revolutionize the rental transaction by offering the compact format as a low-priced rental in kiosks at numerous grocery stores and other outlets.

“As our industry celebrates the disc’s 20th anniversary, Redbox is extremely proud to be part of the disc’s continued importance and its future,” said Galen Smith, CEO of Redbox, the nation’s No. 1 disc rental service. “One clear indicator of the ongoing popularity of the disc is the fact that Redbox kiosks dispense about a million low-cost rentals a day to hard-working Americans in communities nationwide. As the bar for quality rises with new physical formats, Redbox will be there to deliver the most affordable choice for renting new-release movies.”

Last September, investor group Apollo Global Management ponied up $1.6 billion to take Redbox private. Wedbush Securities media analyst Michael Pachter said the high purchase price underscored the longevity of physical media.

“[There are] lots of DVD players out there, rental is still cheap and there are very late adopters (i.e. low-income households) who appreciate the format,” he said.

Indeed, consumers around the world still value the disc, despite the growth of digital delivery. British-based Futuresource Consulting, in a global survey of more than 16,000 respondents, found that while there is an increase in the number of consumers buying and renting digital movies, the “vast majority” of these consumers still purchase packaged video — with only 4% of buyers purchasing just EST and not packaged media.

In a separate survey, researcher GfK found respondents continue to prize packaged media’s unique features, including director’s cuts, audio commentaries and other special features not found in most digital media. While 46% of respondents in the survey said they purchased or rented a digital movie, 86% said they bought or rented a DVD or Blu-ray Disc. Among respondents who had never bought or rented digital media, 70% bought/rented DVD or Blu-ray Disc. Among consumers who rented or purchased digital media, 33% said they did so monthly, the survey found, compared with 60% who rented packaged media.

“Our research clearly shows that most [respondents] have histories renting or buying TV shows and movies in physical form,” said David Tice, SVP of media and entertainment at GfK.

“We know that a staggering 93 percent of movie buyers are still active in the disc format today,” Universal’s Cunningham added. “Keeping those consumers engaged and transacting depends not only on great content, but also on our continued product innovations such as 4K Ultra HD and VR, which stand to further enhance and differentiate the movie-watching experience.”

4K keeps the disc spinning

The newest disc format — 4K UHD Blu-ray — is getting off to a strong start. Buoyed by consumer adoption of 4K TV, about 8.4 million 4K UHD Blu-ray Discs will be sold in 2017, according to Futuresource. The projected 4K tally would represent 4% of global Blu-ray Disc sales.

About 110 Ultra HD Blu-ray Disc titles were available in the market by the end of 2016, with 250 titles projected this year. According to the Consumer Technology Association, about 10 million 4K Ultra HD TVs were shipped in 2016, representing nearly $10 billion in consumer spending. By the end of 2017, CTA projects there will be 30 million 4K Ultra HD TVs in the market. In addition, approximately 300,000 Ultra HD Blu-ray players shipped last year.

The DEG noted consumers are “embracing” 4K UHD Blu-ray, and buying movies and TV shows “at a faster pace” than when Blu-ray Disc was launched in 2006.

“As fans upgrade their home entertainment systems and demand greater quality, 4K Ultra HD Blu-ray Discs provide the best possible viewing experience with four times the resolution and more than double the number of colors available than with full HD,” said Paramount’s Buchi.

“Add to that the exceptional vibrancy and contrast of high dynamic range technology along with object-based immersive sound, and it’s clear why the disc format remains the best and most prevalent way to watch movies at home.”

“Consumers have a variety of choice today, but the disc has remained at the heart of a quality experience through the introduction of high-definition content with Blu-ray, digital ownership with Digital HD, premium viewing experiences with 4K Ultra HD with high dynamic range, and more is on the horizon,” said Danny Kaye, EVP of global research and tech strategy for 20th Century Fox, and managing director of the Fox Innovation Lab. “Working closely with our consumer electronics partners in the Fox Innovation Lab, we will continue to improve technology to deliver results that keep the physical disc a natural part of the consumer purchase decision.”

By revitalizing the disc with new formats and features, the industry continues to please ardent fans.

“From DVD to Blu-ray and now UHD, optical disc continues to provide the highest-quality picture and sound outside of a movie theater,” said Adam Gregorich of enthusiast site Home Theater Forum. “Enhancements like DTS:X, Dolby Atmos, 4K and HDR continue to keep optical discs on the cutting edge 20 years later and are still the best way to enjoy movies at home.”

“Despite the popularity of streaming services, Blu-ray and DVD remains the format choice for collectors and hardcore movie enthusiasts who want the best-quality presentation in their home,” added HTF’s Ron Epstein. “Home Theater systems thrive from discs that deliver unsurpassed picture and sound to consumers.  I am most excited about the multiple audio formats that are available on Blu-ray, including Dolby Atmos. There is just no comparison of disc-delivered quality to that of streaming — not to mention all the extra features that studios include which give you insight into the production of the film.”

As an added bonus for the industry, the disc has helped grow the digital business as well via digital copies to download at home or store in the cloud.

“Discs revolutionized the home entertainment industry beginning 20 years ago, and as viewing habits of consumers continue to evolve today, they’re also proving to be a valuable resource in the transition to digital,” noted Disney’s Marinelli.

Still spinning in 2017

Disc sales continued to buttress results at studios during the most-recent fiscal periods.

Packaged-media and digital sales of Deadpool contributed to a 109% revenue spike at 20th Century Fox Studios. The Ryan Reynolds superhero comedy generated $80.4 million from more than 4.5 million DVD/Blu-ray Disc units — to rank as the No. 2 selling title in 2016, according to The-Numbers.com.

Speaking last October at the 10th annual Film London Production Finance Market confab, Danny Perkins, CEO of StudioCanal
UK, stressed packaged media’s lasting strength.

“For the last 10 years, people have been saying there are two years left in DVD and it’s going to drop off a cliff. Here we are 10 years later and it is still going strong,” Perkins said.

Michael Burns, vice chairman of Lionsgate, in August told an investor group disc sales add to the bottom line — notably for underperforming theatrical titles. Burns remarked that 2011 fight-themed release Warrior lost the most money of any Lionsgate theatrical release, despite starring Tom Hardy, Joel Edgerton and Nick Nolte, who received an Oscar nomination. The studio was able to offset the $28 million hit via packaged media.

“The DVD business is going to be around a lot longer than people think. It’s still a massive business for us. It’s not going away,” Burns said.
Packaged media is retaining an audience abroad as well. Satellite TV operator Sky’s “Buy & Keep” platform, which offers a DVD with each digital purchase, is gaining traction internationally as the operator expands service in Europe. Usage has grown to 21% of Sky subscribers, from 16% a year earlier. Indeed, the number of retailers selling music and/or video in the United Kingdom has increased each of the past eight years — and now stands at more than 15,300 locations.

“Digital may grab the headlines, but we should not underestimate the [public] fondness … for physical formats,” said Kim Bayley, CEO of the Entertainment Retailers Association.

“The physical disc has remained relevant and a favorite way for movie lovers to collect entertainment over the past two decades because of its evolution to meet consumer demand for increasingly high-quality, interactive, convenient and portable entertainment experiences, through Blu-ray Disc and now Ultra HD Blu-ray,“ said the DEG’s Smith.

“By working in lockstep with our retail, hardware and technology partners, we can deliver on consumers’ expectations and ensure the format’s ongoing sustainability,” said Universal’s Cunningham.

“We expect packaged media to continue to play an important role in an evolving industry that offers ever-expanding choices to our consumers,” added Lionsgate’s Schwartz.

“The desire for ownership is strong, and many consumers who value ownership — those who are collectors of movies, television shows, and special-edition packages — and gift-givers prefer the disc format,” said the EMA’s Fisher. “We anticipate that will continue to be the case for the foreseeable future, meaning the future of the disc remains shiny.”

About the Author: Stephanie Prange

About the Author: Erik Gruenwedel

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