nScreenMedia OTT multiscreen media analysis

Pay TV increases share of home entertainment budget

pay TV box office other entertainment spending

The Digital Entertainment Group highlights the continued decline in both physical media, and in the rental of movies both physical and digital. However, the big news is the pay TV continues to dominate the home entertainment budget and continues to extend its lead.

Rental continues precipitous decline

Physical media rentals continued their year-over-year double digit declines. In Q2 2017, rental revenue from video stores was down 18%, disk subscription revenue down 17%, and kiosk rentals down 19%. Electronic rentals, which delivered a solid increase in 2016, has hit the skids in 2017. Revenue declined 4.7% YoY in Q1, and was down again in Q2, declining 2.3%. The entire rental sector delivered $1.03 billion in Q2 2017, versus $1.5 billion in Q2 2013.

Video ownership also declines

Revenue from disk sales was $1.13 billion, down 5.8% YoY. Electronic sales increased 3.2% to $500 million, but this increase was not enough to offset the decline in disk sales. Overall, revenue from disk and electronic sales fell 3%, to $1.63 billion.

 Subscription VOD continues strong growth

Much of the revenue declines in rental and ownership continue to transfer to service offering subscription libraries of movie and TV content. Revenue from SVOD services like Netflix and Hulu increased 22% YoY, to reach $1.8 billion. This category of service has tripled in size over the last 5 years.

Normally, in the fourth quarter consumers buy a lot of disks as gifts for the holiday season. In the past, that holiday bump in purchasing has been extreme. For example, revenue from purchasing media almost doubled between the third and fourth quarters of 2013. The holiday bump has been declining ever since.  However, it has been enough to lift video purchase revenue over SVOD revenue every year. 2017 could be the first year that doesn’t happen.

DEG ownership rental subscription home entertainment revenueQ4 SVOD revenue should be around $2.15 billion if recent historical trends continue. Forecasting in a similar fashion indicates revenue from video purchases should be about the same, $2.15 billion. It should be noted, however, that DEG does not include any revenue from Amazon Prime in its figures. Some of that revenue should rightfully be attributed to video. That would likely push the SVOD Q4 revenue total well above the purchase revenue number.

Pay TV and video entertainment budget

One of the things DEG does not include in its numbers is the amount consumers spend on pay television. Turns out this is far-and-away the biggest part of home video entertainment spending and continues to increase. Between Q2 2014 and Q2 2017, home entertainment spending tracked by DEG increased 11%, to $4.5 billion. The amount consumers spent at the box office barely increase at all, totaling $3 billion in Q2 2017. Over the same period, the amount consumers spent on pay TV per quarter increased from $27.1 billion to $30.8 billion, a 14% increase.

Looked at another way, the total video entertainment spending by consumers in Q2 2014 was $34.2 billion. 79.3% went to pay TV providers, 11.9% to other home video products and services as tracked by DEG, 8.9% to movies at the theater. In Q2 2017, 80.3% went to pay TV, 11.7% to other home video products and services, and 7.9% to movie box office. This even though the number of pay TV households declined 1.3 million over the period.

Why it matters

In the U.S. the movie rental market continued its rapid decline in Q2 2017.

Consumers also continued to curtail their purchases of movies and TV shows.

SVOD revenue continued to expand rapidly.

However, spending on rental, purchase, SVOD, and the movie box office together is still far less than consumers spend on pay TV services.

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