nScreenMedia OTT multiscreen media analysis

4K discs arrive, fail to stem disc sales losses in 2016

US rental v purchase v subscription spending 2011 - 2016

DEG US home entertainment spending numbers for q4 2016 show that consumers spent $1.3 on digital media for every $1 they spent on physical media last year. In 2017, it looks like for every dollar spent on physical media, they will spend a dollar on SVOD services like Netflix and Hulu.

Total home entertainment spending remains flat

US entertainment spending in 2006 dollars - 2006 to 2016DEG says that total home entertainment spending in the US crept up 1.7% in 2016, to reach $18.3B. Unfortunately, this increase barely made up for inflation, which was also 1.7%. If we look at the change in home entertainment spending since 2006, the picture is a little bleaker. In 2006, total spend was $21.6B. So, in dollar terms, spending has fallen $3.3B. Accounting for inflation, the loss is much bigger. Since a 2016 dollar is worth $0.84 of a 2006 dollar, total 2016 spending is $15.3B in 2006 dollars.

Physical media spending continues to contract

2016 saw big growth in the number of 4K televisions in consumer homes, and the introduction of the 4K Blu-ray disc. DEG says there were 10 million 4K UHD TVs sold in the US last year. As well, 300,000 4K UHD Blu-ray players were sold. By the end of 2016, there were 110 UHD Blu-ray titles available, with another 250 promised by the end of this year.

Despite all this positive news, disc sales and rentals continued to plummet. Disc sales were down 9.6% on the year (to $5.5B), a slightly better performance than the 12.5% decline in 2015. However, physical rentals were dramatically lower, with store rentals down 21% and kiosk transactions down 17%. Last year they both fell 11% and 9.5% respectively. The entire physical disc rental market spend was $2.5B, down from $5B in 2011.

I discussed last year how consumers just aren’t gifting discs anymore. This year is no exception. In 2013, Q4 sales of discs was 86% higher than in Q3. In 2016, the Q4 bounce over Q3 fell to 58%.

Digital media spending growth focused on SVOD

SVOD spending continues to expand faster than any other entertainment category tracked by DEG. It grew 23%, to $6.2B, in 2016. This marks the first year SVOD spending exceeded disc sales. Electronic movie sales increased a more modest 5.4%, to just over $2B, and VOD rentals increased 5.5% to $2.1B.

It’s interesting to note that, in general, consumers don’t seem to like to give electronic versions of movies during the holiday season. 2016 Q4 digital sales were just 14% higher than Q3 sales. Neither do they like to give subscriptions to services like Netflix or Hulu. SVOD spending exhibits no seasonality whatsoever.

Digital versus physical, ownership versus access

US digital versus physical media spending 2011 - 2016Consumers spend $1.3 on digital media for every $1 they spend on physical media. One year ago it was pretty much even, and in 2013 consumers spent $0.73 on digital for every $1 spend on physical media. It seems unlikely that 4K UHD discs will make much of an impression on this trend.

2016 will likely be the last year that consumers spend more on owning movies and shows than on accessing them via large SVOD libraries. Total purchases of movies (on disc and digital) fell 6%, to $7.5B, in 2016. The previous year saw a similar decline. SVOD increased 23%, to $6.2B, in 2016, after similarly large increases over the last several years.^ With Amazon, VRV and others stepping in to help sell partner VOD services, strong growth in the sector seems likely to continue.

Why it matters

Total home entertainment spending has flat in 2016 over 2015, though it has declined dramatically over the last 10 years.

Digital media spending now exceeds physical by 30%.

In 2017, expect to see the amount consumers spend on SVOD services exceed spending on discs for the first time.

*DEG’s Q4 2016 numbers are provisional. Though they may change when final details are available at the end of the month, in the past the provisional numbers have proven to be very close to final results.

^DEG does not attribute any Amazon Prime subscription spending to its SVOD total. Taking this account, it could be argued that SVOD spending already equals disc spending.

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