Disc spending positively flat at midyear

Blu-ray sales top $200 million

By Susanne Ault -- Video Business, 7/18/2008

JULY 18 | Consumer home entertainment spending at the halfway mark in 2008 is almost perfectly pacing 2007, providing good news for industry executives who have been braced for worse in these hard economic times.

Through the first six months of the year, sell-through slightly dipped 0.5% to $6.17 billion. But rental offset that drop, rising 0.5% to $3.97 billion. Consumers generated $10.1 billion in DVD and Blu-ray Disc sales combined, unchanged from the comparable 2007 frame. (Click for Top DVD Sellers and Top DVD Renters.)

Studios credit home entertainment’s value positioning with consumers, which has been enhanced by such upgrades as Blu-ray and digital copy without much increase in price. Faced with soaring expenses, a DVD is a fun bargain, compared to going out to dinner or scheduling an out-of-town vacation, executives said.

“I think it’s extraordinary that the business is holding up this well, given how much of consumers’ dollars are being sucked up by increases in gas and food,” said Craig Kornblau, Universal Studios Home Entertainment president. “It’s a bit reminiscent of the last recession during the ’90s, when consumers were also not going out as much and wanted a home entertainment experience.”

After assessing the first and second quarters, Warner Home Video president Ron Sanders has increased his end of the year projections. He also believes that consumers are gunning more and more for inexpensive catalog titles, further propping up unit sales. Catalog DVD spending is up 4.5% through the half-year mark, according to estimates by Warner and others.

“We’ve seen that the marketplace is holding up better than we thought, roughly flat, and we think it will end the year at about that level,” said Sanders. “That is driven principally by catalog, where the value is ringing true in these recessionary times.”

Lionsgate turned in its best first-half performance to date, said general manager and executive VP Ron Schwartz, defying the downward direction of many other non-DVD businesses. For the first half of 2008, Lionsgate hauled in more than $800 million in revenue, up 24% from the same point a year ago.

Although Blu-ray titles are sold at a hefty premium to standard DVD, consumers believe BD is a relative deal compared to other leisure options, say studios. That is reflected in BD spending north of $200 million year-to-date through June, up about 300% from the same 2007 frame.

“I think people are becoming pickier on what they spend their money on, but home entertainment always represents a good value,” said Lori MacPherson, general manager for Walt Disney Studios Home Entertainment, North America. “Thirty dollars for a Blu-ray movie that you can watch over and over again is still a great value.”

20th Century Fox Home Entertainment president Mike Dunn cited data that Blu-ray is gaining ground at retail. According to studio research, "We are trending 8% Blu-ray sales [per title], and at the end of the year, we will be between 10% and 12%,” said Dunn.

He said retailers are building up Blu-ray sections without slimming standard DVD rack space. The entire market’s retail space has widened 5% in the last 12 months over the same period the prior year, he estimated.

“I just got off of a trip where I visited every major retail store, and by and large, the Blu-ray sections are additive to the entire department,” agrees David Bishop, Sony president. “So there is no cannibalization on standard DVD in the process.”

Blu-ray title promotion will form a key part to Sony’s strategy for the back half of the year, as the studio looks to support new BD Live players.

“We want to ensure that if you buy a Blu-ray-dedicated machine, that you come out with movies too,” said Bishop. “It might be that you buy the player and get a discount on [Sony] movies.”

Besides Blu-ray, digital copy also is bolstering the entire home entertainment category because of its added consumer convenience, say studios.

Fox’s first copy-embedded title, 2007 release Live Free or Die Hard, drew 30,000 file transfers. After incorporating copy compatability with Apple iPod devices this year, copy usage on embedded Fox titles rose between 50% and 100%. Across the six Fox releases that have been embedded with a film copy thus far, consumers made 350,000 transactions to access these files.

“The concept of digital copy for DVD and Blu-ray is like adding air conditioning to a car,” said Dunn. “Now there is everything in one package. For your living-room screen, there is Blu-ray. And then for screens that fit into your pocket, digital copy satisfies that. It puts the content where the consumer is.”

Top 20 DVD Sellers

Source: Video Business research; YTD through June 29

Top 20 DVD Renters

Source: Video Business research and Rentrak; YTD through June 29