DEG: Digital Growth Insulates Home Entertainment Industry From Weak Box Office in 2014

6 Jan, 2015 By: Thomas K. Arnold

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Consumer Spending was slightly below 2013, as disc continues to erode

Home entertainment leaders are looking toward significant growth in electronic sellthrough sales as the silver lining to 2014, a year in which consumer spending on all forms of home entertainment slipped below $18 billion for the first time in years and disc sales were off nearly 11% from the previous year.

Consumer spending on buying movies electronically soared more than 30% during the year to $1.55 billion from $1.19 billion in 2013, according to preliminary numbers released Jan. 6 by DEG: The Digital Entertainment Group, and based on studio input.

The spike in electronic sellthrough of theatrical new releases, a key industry metric, was even more pronounced, at more than 60%.

But disc sales — DVD and Blu-ray Disc combined — remain the home entertainment industry's primary revenue stream, and in 2014 the steady decline in total consumer spending on disc purchases that has been going on for several years accelerated, due in large part to lower retail prices and a weak box office.

Consumers spent an estimated $6.93 billion in 2014 on DVD and Blu-ray Disc purchases, 10.9% less than the $7.78 billion they spent in 2013.

And even when factoring in electronic sellthrough, also known as Digital HD, total consumer spending on purchases of movies and other filmed content was down 5.4% for the year, to $8.49 billion from $8.97 billion in 2013.

But things aren't as bad as they might seem, industry leaders maintain. They note that the box office value of films coming to video during 2014 was down even more than consumer spending totals, and this undoubtedly depressed sales numbers. Moreover, they say, the explosive growth in Digital HD sales indicates consumers are comfortable with the concept of buying movies and other filmed content electronically, which sets the stage for an inevitable rebound in the years to come.

"We are encouraged by the continued growth of the digital business," said Ron Sanders, president of Warner Bros. Worldwide Home Entertainment Distribution. "The video box office was down year over year, so that will clearly affect the total consumer spend, but digital ownership continues to expand."

Mike Dunn, president of 20th Century Fox Home Entertainment, agrees. "Consumers are quickly evolving," he said. "And we stay ahead of our consumers by growing engagement across digital platforms, fostering partnerships with top consumer electronics brands, implementing industry leading multi-platform marketing initiatives and investing in research and development to future-proof our products."

In further good news for Digital HD, UltraViolet accounts grew by more than 30% in 2014, to more than 21 million, with 110 million movie and TV shows in these consumers' digital libraries.

Consumer spending on subscription streaming, led by Netflix, rose an estimated 25.8% to $4.01 billion, DEG reported. Kiosk rentals, mostly through Redbox, slipped 4.4% to an estimated $1.81 billion for the year, while traditional rental at brick-and-mortar rental stores continued its free fall, dropping another 27.1% during 2014 to finish the year at an estimated $696.4 million.

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