The amount Americans spent on home entertainment in Q1 2018 increased 8.7% over the same quarter last year. However, all the extra revenue went to SVOD, as people increase the time they spend watching online.
US home entertainment spending increases
According to the Digital Entertainment Group (DEG) people in the US spent $5.7 billion on purchasing, renting, and streaming movies and TV shows in Q1 2018. In the same quarter last year, they spent $5.2 billion.
Revenue to purchase discs and electronic video declined 4%, representing an improvement over past performance. The first quarter has seen purchase revenue decline 7% and 9% in the previous two years. DEG says the improved performance was due to a surge in buying of movies in the electronic market. Discs sales sagged 10% to $1.1 billion, though DEG says UHD Blu-ray sales increased 130% in the quarter.
Rental revenue continued its spiral downwards, falling 13% overall. Physical disc rentals sank 20% over the same quarter in 2017 while online rentals fell 4%. The total rental market generated $1 billion in Q1 2018, down from $1.4 billion in Q1 2014.
Just as rentals and purchases continued their long-term decline, SVOD continued its vigorous long-term growth. DEG said consumers spent just below $3 billion in Q1 2018, an increase of 29% over Q1 2017. SVOD revenue has more than doubled since Q1 2014.
What’s driving SVOD growth?
The growth in the number of people using SVOD services seems to be slowing. TiVo says that 64% of people were using SVOD services in Q4 2016 and 68% in Q4 2017. In other words, the number of people using SVOD increased 6% over the period. DEG says revenue increased 20% between Q1 2017 and 2018.
The revenue increase came from two places. Netflix increased prices 10% in Q4 2017. There is also evidence that consumers are taking more than one SVOD services. Brett Sappington of Parks Associates says that 15% of broadband households subscribe to 3 or more OTT video services as of late 2017, up from 10% a year earlier. 36% subscribe to 2 or more services.
Where the entertainment spending goes
For the first time, more than half of the home entertainment spending tracked by DEG went to SVOD services in Q1 2018. No other category saw growth. Disc spending, once a mainstay of the movie industry, declined from 23% to 19%, disk rentals from 9% to 7%. Kiosk rentals were particularly hard hit, toppling 20%.
If we include pay TV subscriptions, which DEG does not, the cable bill still dominates the overall home entertainment budget. Americans spent $23.5 billion on pay TV subscriptions in Q1 2018. However, this represents a decline of 3% over the same quarter last year.
Spending on physical media dropped to just 27% of home entertainment spending in Q1 2018, down from 34% in the same quarter of last year. Conversely, digital media expanded its share of home entertainment spending from 66% to 73%. It is interesting to note that physical disc sales and rentals still generate more revenue than digital sales and rentals, $1.5 billion versus $1.2 billion.
Why it matters
Home entertainment spending increased 9% in Q1 2018.
All the increase went to SVOD services, whose revenue grew nearly 30% over last year.
The SVOD revenue increase came mainly from a Netflix price increase and a rise in the number of services subscribed to per home.