SVOD extends dominance of digital video

SVOD extends dominance of digital video spending

‎Yesterday, ‎January ‎07, ‎2015, ‏‎8:37:59 PM | Colin DixonGo to full article
Home entertainment spending in the US has been undergoing a digital makeover for the last few years. According to the Digital Entertainment Group, 2014 saw that process accelerate. If we keep up the pace, by the end of 2015 digital video spending will be at parity with physical.

DEG had some good news for the entertainment industry in its preliminary 2014 results. US home entertainment spending has stabilized at around $18 billion annually. Between 2006 and 2011, total spending declined 17%, from $21.6B to $18B. Since then, it has remained essentially flat.

However, beneath those placid financial waters, change is reshaping the fabric of the industry. In 2013, two thirds of home entertainment spending went to physical media, and just one third to digital. In the quarter just ended physical has fallen to 60% of spending, digital has grown to 40%. If the trends that have been established over the last 8 to 12 quarters continue through 2015, by the end of the year physical and digital spend will be equal.


The fourth quarter is normally good for physical disk sales, and 2014 was no exception. Consumers bought $2.34 billion worth of DVD and Blu-ray disks, almost double the Q3 total. Unfortunately, consumers spent 16% more on disks in Q4 2013, and 23% more in Q4 2012. The physical disk rental business continued its collapse. Store rentals fell 35% year-over-year and subscription disk rentals fell 24%. Kiosk rentals were the one bright spot, losing 5% over the previous year. Overall, disk rental spending has declined 25% since 2012.

Electronic sales of movies is growing strongly, though not enough to compensate for the fall in disk sales. Physical disk sales fell 11%, to $6.9 billion, in 2014. If we include electronic sales, spending fell 5%, to $8.5 billion.

Q4 electronic sell through (EST) increased 25%, to $532 million, over Q4 2013. For the year, EST increased an impressive 30%, to $1.55 billion. VOD rental revenues were the digital laggard, falling for the fourth consecutive quarter. VOD spend fell 6% over Q4 2013, to $517M, with an annual total spend of $1.97 billion.

Subscription VOD , which DEG calls streaming services, continued to grow strongly in the fourth quarter, increasing 25% to $1.1 billion. Annual SVOD revenues increased 26%, to over $4 billion. It should be noted that DEG does not include Amazon subscription revenue in this total, as it is difficult to assess how to apportion video subscription revenue from other services (like free two day shipping.)

where the entertainment money goesIt’s interesting to see how consumers are reallocating entertainment dollars. Disk sales fell $845M and rentals fell $529M in 2014. Digital sales increased $362M, VOD rentals decreased $141M and subscription streaming increased $824M. The DEG data makes it clear that for every dollar saved on physical disks, 60 cents goes to subscription streaming, 26 cents goes to digital sales and the rest stays in the consumer’s pocket.

Why it matters

Overall, home entertainment spending remained essentially flat, at $18B, in the US in 2014.

Digital now accounts for 40% of home entertainment spending in the US.

Consumers continue to shift entertainment dollars from ownership into the right to access large libraries of digital content through subscription streaming services.