The Quest to Drive Ownership30 Jan, 2017 By: Thomas K. Arnold
As 2017 gets underway, home entertainment leaders say they intend to step up efforts to get consumers to buy more movies, TV shows and other filmed content — both electronically and on disc.
It’s hardly an either/or proposition, studio executives say — a sale is a sale, and studios want more of them. As a result, expect more experimentation on the digital side, perhaps with tiered windows — as well as stronger, more-productive partnerships with the new breed of retailers, from Comcast to Google Play.
At the same time, expect less retrenching from physical media — and a renewed effort to better relations with brick-and-mortar giants such as Best Buy and Walmart.
“Digital sellthrough will be well over a $2 billion business this year in consumer spend,” predicts Ron Sanders, president of Warner Bros. Worldwide Home Entertainment Distribution. “And don’t forget that physical DVD and Blu-ray Disc still represent well over half of our industry revenues, with explosive growth in the 4K UHD segment.”
“We will continue to innovate across products and platforms, looking at new ways to improve the value and appeal of owning content,” added Sony Pictures Home Entertainment president Man Jit Singh. “At SPHE, we see a lot of opportunity in technologies like VR and digital movie extras, as well as premium experiences like 4K Ultra HD and immersive audio.”
Bob Buchi, president of worldwide home media distribution for Paramount Pictures, agrees. “Home entertainment is no longer either/or for many consumers, but a continuum of ways to enjoy their favorite movies or discover new content,” he said. “We’re going to continue to see the blurring of those lines, and will help our retail and distribution partners work to meet their customers across all of their platforms.”
With a nod to Superman — and “Seinfeld” — 2016 was something of a Bizarro World for the home entertainment industry.
Disc sales, after years of double-digit declines, ended the year remarkably resilient, due in no small part to a surprising uptick in Blu-ray Disc sales — 8% in the first nine months of the year, according to DEG: The Digital Entertainment Group — that kept packaged media’s overall decline in the single digits.
But the sales growth of digital downloads, or electronic sellthrough (EST), which had been in the double digits over the past few years, just as surprisingly leveled out — with preliminary numbers released Jan. 6 by the DEG showing digital download sales for the year grew just 5.42% — dragged down by an anemic 0.26% in the fourth quarter.
These developments have prompted studio executives to step up efforts to boost disc sales through stronger retail partnerships and expanded distribution outlets — while at the same time looking beyond early release windows to somehow heighten EST’s value proposition so more consumers will be encouraged to buy and not just stream.
“There’s still a lot of life left in physical media and the industry needs to continue to serve this vital part of the market,” said Warner’s Ron Sanders. “We work closely with our retail partners to create product and programs that best serve their needs. From repackaging and refreshing content on venerable catalog libraries such as ‘Harry Potter’ to working with filmmakers to create new versions of films for home entertainment (such as Batman v Superman), we keep packaged media fresh.”
Optimizing “mega franchises” has been taken to a whole new level, Sanders added. “With DC Comics, for example, not only did we release special editions for library content to draft with the powerhouse theatrical movies, but we also released six new TV series (including ‘The Flash’) and six new animated ‘made for videos’ premiering in home entertainment — including Batman: The Killing Joke, the top-selling made-for-video release of 2016.”
Further fueling optimism about the disc business is the promise of Ultra HD Blu-ray Disc, a new format that offers viewers four times the resolution of HD and also includes high dynamic range (HDR), which produces brilliant highlights, vibrant colors and greater contrast on compatible displays. The first Ultra HD Blu-ray Disc titles were released in March; by the end of June, consumers had snapped up 228,000 discs, according to Home Media Magazine estimates — four times the amount of regular Blu-ray Discs sold a decade ago in that format’s first three-month window.
According to the report released by DEG during CES in Las Vegas, there are now 110 Ultra HD Blu-ray Disc titles in the market, with 250 titles projected to be available in 2017. According to the Consumer Technology Association, about 10 million 4K Ultra HD TVs were shipped during 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 in calendar 2016, accounting for $66 million. Consumers snapped up an impressive 1.8 million UHD Blu-ray discs in the United States in 2016, according to data cited by the Blu-ray Disc Association. The disc-to-player attach rate was an impressive 6-to-1, noted the BDA, adding that sales have been three times as fast as the launch of Blu-ray.
“In many ways, 2016 was the year of Ultra HD, a category I expect will only continue to gather momentum as we move into 2017,” said SPHE’s Singh. “We all watch plenty of media on the go, but consumers want a premium experience in their living rooms. At home, quality matters. 4K resolution, high dynamic range and immersive audio systems are increasingly common in consumers’ living rooms, and they want premium content to make the most of these systems. At SPHE, we were among the first studios to launch 4K Ultra HD Blu-ray, and sales have already exceeded our expectations, contributing to significant growth in spending on the format.
“As more UHD players come to market, we expect this trend to continue.”
The leveling off of EST sales, studio executives say, can be blamed on a variety of factors, from the novelty of early release windows wearing off to consumers not seeing the value in buying a movie or TV show for roughly the same amount of money it costs to stream an entire month of Netflix content. Sure, hot new theatrical features are available only for sale, either on disc or as downloads, and it can take quite a while for top-grossing movies to come to Netflix — if they ever do. One studio executive who didn’t want his name used said the most recent movie from his studio available at Netflix is 9 years old.
The trouble, studio executives say, is that consumers either haven’t grasped that notion, or, worse, don’t care. The Jan. 6 preliminary numbers from DEG show sales of content, physical and digital combined, amounted to an estimated $7.5 billion, nearly 6% less than in 2015. Subscription streaming and video-on-demand, meanwhile, generated a combined $8.3 billion, DEG numbers show — a gain of 17.8%. Streaming alone, much of it through OTT leader Netflix, rose 22.6%.
That’s why it is incumbent on home entertainment marketers to deliver the message and enhance the value proposition, both for physical product and for digital content, studio executives say. In the latter case, studios also need to make sure consumers have a seamless way of transferring purchased content not just to their mobile device, but also to their home theater set-up.
“We need to provide consumers something unique that comes only with ownership, and make sure we are offering them the right price-value relationship,” said Sony’s Singh. “In the transactional world we increasingly compete with free or nearly free content from services with increasingly flexible models like local downloads. Digital ownership is still hampered by a lack of flexibility for the consumer, and while industry efforts at interoperability have helped, we have to do more to improve the value of owning content.”
“There are a number of tactics that we’ve employed to further drive physical and digital ownership,” added Janice Marinelli, president of Disney/ABC Home Entertainment & Television Distribution. “This year we improved our retail presence and placement within stores with more compelling displays, working in conjunction with our retail partners. Most notably, for the in-home release of Star War: The Force Awakens, we created oversized interactive displays featuring BB-8. We also increased the number of sales promotions and bundling of titles to entice consumers to make the leap from rentals to ownership.”
For example, Marinelli said, “This year we spearheaded an unprecedented promotion and made all of the classic ‘Princess’ titles available for purchase at the same time to support the 25th anniversary release of Beauty and the Beast.” Additionally, she said, “we expanded our social and digital outreach to include more interactive experiences and we also had tremendous success with the release of refreshed artwork and packaging, which helped bolster catalog sales.”
Unlike the industry overall, Marinelli said, Disney’s digital business “produced outstanding results this year and continues to soar. In fact, Disney/ABC sustained double-digit digital growth and had four best-selling digital titles in the top 10 [last year] with Star Wars: The Force Awakens, Marvel’s Captain America: Civil War, Zootopia and Finding Dory. These incomparable digital sales are driven by the fact that Disney consistently produces hit titles from world-class brands that people want to enjoy over and over again. We also continue to successfully utilize early digital windows for the right collectible titles and have increased our pre-sale promotions during theatrical windows.
“On the bonus front, this year we revamped our digital bonus materials program with iTunes to include expanded and interactive experiences, allowing us to insert brand-new content when it strategically makes sense to do so. For example, with the recent in-home release of Marvel’s Captain America: Civil War, we built an interactive extras experience that enables our customers to access additional exclusive content.”
Observers say Disney also benefitted from its Disney Movies Anywhere content storage platform. Initially frowned upon by other studios because it was a proprietary platform, DMA is now seen as something of a gold standard — thanks in large part to Disney’s success in establishing partnerships with such key distributors as Apple iTunes, Comcast, Amazon and Google. The repeatability of Disney branded movies also enhances the ownership potential, as does the widening field of Disney brands, which now includes Pixar, Marvel and Lucasfilm.
Warner’s Ron Sanders said he believes “one of the drivers in the slowdown” of EST growth is SVOD/OTT cannibalization, particularly for TV EST, “where growth has flattened over the course of 2016.”
“To create added consumer engagement with EST,” he said, “we’ve recently launched a next-generation offering for tablet and mobile that provides consumers with a deep, immersive viewing experience featuring dynamically updated extra content and the ability to interact with a community of fans and filmmakers. Suicide Squad was our first release with this functionality, in partnership with Vudu. Additional titles and platforms are to come.
“Warner Bros. also believes in the importance of shared entitlements, which are a critical element for assuring interoperability and building consumer confidence in digital ownership.”
“Paramount is steadfast in our commitment to augment and market the value of physical and digital ownership,” added Paramount’s Buchi. “Whether through special packaging and premiums, alternate versions, next-generation bonus content, promotional offers, windowing, or the best in audio/visual technology, we are working hand-in-hand with our retailer partners to give the consumer a compelling reason to own.”
Aside from the battle to drive home the value of ownership, studio executives in 2016 were faced with an increasingly connected consumer base.
Consumer eyeballs were everywhere, and smart studios did not put all their proverbial eggs in the same basket. Sony, for example, was a prime driver of Ultra HD Blu-ray Disc, but at the same time, said Singh, “SPHE also launched ULTRA, our 4K HDR streaming movie service on Sony televisions, and we are expanding its availability to Intel-powered laptops.
“We need to continue to innovate and push the industry forward with high-quality formats like 4K, HDR and new audio technologies that really immerse audiences in our entertainment.”
Mike Dunn, president of product strategy and consumer business development at 20th Century Fox, agrees.
“2016 was the year of connection,” Dunn said. “The consumer journey is more diverse and more connected than ever before. They are inundated with choices that range from traditional cable to OTT services to user-generated content, and everything from their actual devices to their viewing habits are connected.”
In the year ahead, he said, “we will see more VR, AR, AI and mixed reality, and will continue to wow consumers with the amazing quality of 4K Ultra HD with high dynamic range. As we continue to evolve the ways we create and distribute content, we must make it easy for the consumer to remain connected to the stories and experiences they love, and we must help them understand the formats available, including defining clear benefits of how and why to purchase.”
Indeed, the Fox Innovation Lab, in partnership with RSA Films and The Virtual Reality Company, Nov. 15, 2016, released its first commercial virtual reality endeavor, The Martian VR Experience, at $19.99 for PlayStation VR (PS VR), which recently launched for the PlayStation 4 (PS4) system, and HTC Vive on Steam.
The bottom line, Dunn said, is “we will meet the consumer where they are, and provide options that exceed their expectations.”
Eddie Cunningham, president of Universal Pictures Home Entertainment, said: “2016 proved that home entertainment remains the largest entertainment category, with a great eco-system of physical, digital and subscription-based platforms. Moving into 2017, we remain very optimistic about our business, as we persist in identifying more ways to enrich our product offerings at retail and expand consumers’ choices across the category. Greater innovation and collaboration with our physical and digital retail partners will be a key focus, along with evolving our products and experiences. With 4K UHD already performing ahead of expectations and a huge cross-industry investment in VR under way, we are starting the year out strong in our efforts to keep our consumers engaged and transacting.”