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SVOD grows, rental and purchase shrinks, pay TV dominates

Home entertainment share pay TV box office the rest

Home entertainment spending on video purchases, rentals, and subscription VOD services increased 6% in Q1 2019 over Q1 2018, according to DEG. However, most the growth was delivered by SVOD, as rental and purchase revenue continues to decline.

Video ownership continues to fade

The purchase of Blu-ray and DVDs are becoming an unusual activity for consumers in the US. Sales were just $822 million in Q1 2019, 22% lower than Q1 2018. It is sobering to reflect that only five years ago, in Q1 2014, disc sales were more than double Q1 2019’s total.

Electronic sales of movies and TV shows grew 6% over the same quarter last year, to reach $666 million. However, growth was 3% slower than in the same quarter the previous year. Electronic sales also did not grow nearly enough to make up for the loss in disc sales. Digital and physical video sales fell 12% over Q1 2018, settling at $1.5 Billion. For reference, Q1 2018 sales were $1.7 billion, and Q1 2014 sales were $2.2 billion.

Renting video’s less popular

Renting discs also continues to fade. Brick and Mortar rentals are a shadow of the former robust business. Store rentals fell 17% to an almost negligible $73 million, putting the market on pace to deliver about $300 million in 2019. In 2011, the business was worth $1.6 billion. Disc subscription revenue fell 18% to $82 million, and Kiosk rentals fell 13% to $244 million. In Q1 2019, the entire physical disc rental market fell 15% to just under $400 million.

Digital rentals delivered a modest 3% Q! Year-Over-Year (YoY) increase, to reach $564 million. Again, digital was unable to make up the losses in physical rentals. The total rental market including digital fell 6% to $963 million.

Library access growth slows

Subscription streaming revenue increased at its slowest pace since DEG has been tracking it. Revenues were up 21% Q1 YoY, to $3.6 billion. By comparison, Q1 2018 saw revenue increase of 29% and 2017 it grew by 63%. The data is a sure sign the market is maturing in the US.

The fourth quarter will see two major SVOD service launches. Disney+ will launch on November 12th. WarnerMedia’s expanded HBO Now service has yet to have a formal release date though the company says it will be available in beta form before the end of the year. These two new services could cause a surge in revenue and a return to stronger growth in Q1 2020 as free-trialers convert to paying customers.

US home entertainment spending - purchase rental subscription 2016-2019

Pay TV still dominates home entertainment spending

The number of cable, satellite, and telcoTV subscribers continues to decline in the US. In 2018, the industry lost 3.8 million subscribers. Increasing subscription costs helped offset some of the declines. For example, Comcast’s average video revenue per unit (video ARPU) increased from $84.7 in Q1 2018 to $85.8 in Q1 2019. However, virtual pay TV operators (vMVPDs) like Sling TV and Hulu Live gained 2 million subscribers in 2018. Overall, pay TV generated $23.5 billion in Q1 2019, down from $24.1 billion in Q1 2018.

Despite the reduction in overall pay TV subscription revenue, the industry slightly increased its share of household entertainment spending. The primary reason was the poor performance of box office receipts. Box office revenue fell 20% in Q1 2019 from the previous year. Spending on other home entertainment increased its share to 18.6%, led by continued strong growth in subscription VOD. 72.5% of home entertainment spending went to pay TV, 8.9% went to the box office, and 18.6% to rental, purchase, and SVOD services.

Why it matters

Discs sales have declined so much in the US that they contributed an almost insignificant amount to the home entertainment total in Q1 2019.

Rental revenue is heading the same way.

SVOD revenue is increasing strongly, though growth is slowing.

Pay TV, with the help of vMVPDs, still dominates home entertainment spending.

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