As we work to pull together mid-year statistics on DVD sales and rentals (see VB’s July 16 week’s issue), I wonder how long it will be before digital sales and rentals are baked into the home entertainment pie, or whether that will ever happen.

The music industry, which is several years ahead of video in the development of digital distribution has in the past couple of years started to look at physical CD sales and digital downloads—whether sold online or through a kiosk or a mobile phone—as part of the same whole.

So, when Nielsen SoundScan reported last week that at the mid-year mark, 2007 album sales were down 15% from the previous year, to 229.8 million albums, it also reported that sales of digital tracks rose 49% to 417.3 million units.

When the RIAA released its 2006 summation, it showed physical music sales off 12.8% in units and 13.6% in revenue, but that was offset by digital growth of 63.2% in units and 74.4% in revenue. All in, the digital gains offset the physical losses in units, if not revenue, so that the industry as a whole was up 21.6% in units and down 6.2% in revenue.

VB—as well as other publications and organizations—will report that first half 2007 consumer spending on DVD sales and rentals is off somewhere around 5%, in line with that several studio executives and researchers have acknowledged over the past few weeks. (There are perfectly good reasons for that--fewer titles released, smaller cumulative box-office on the titles that have been released, etc. And the fourth quarter may very well be so good that it pulls 2007 even with last year.)

But we don’t yet have a counterbalancing story about the smaller formats that are pulling in enough revenue to offset the DVD decline. VHS is so meagerly distributed that the decline can hardly be blamed anymore on clunky old tapes. And HD DVD alone generates more revenue than VHS and UMD put togther, but high-def packaged media, including both HD DVD and Blu-ray Disc, for the first half is still about 1% of sell-through.

Consider then that PricewaterhouseCoopers predicts that online movies and TV shows will generate north of $300 million this year, a sum that represents about 2% of DVD sell-through. That 2%, together with the growth of high-def discs to 2% or more by the end of the year, could combine to offset DVD declines, if not help the industry to show growth.

DVD is a healthy, mature business, robust at about $24 billion for sale and rentals. No decline as drastic as the 15% that CDs saw in the first half is imminent, but it’s time to start looking at home entertainment as a larger universe than it has traditionally been. 

That said, VB’s first half statistics will not include download activity. But I think it’s something that makes sense to look at late this year and early next in an effort to view the home entertainment in the most comprehensive way possible.