Consumers spend most of their movie dollars on discs

DisplaySearch panel says physical media will remain most popular

By Susanne Ault -- Video Business, 9/16/2008

SEPT. 16 | HOLLYWOOD, Calif.—Physical media is in strong shape, powered by the growing popularity of Blu-ray Disc and DVD enhancements such as digital copy, according to studios and manufacturers at this week’s HDTV 2008 conference at the Renaissance Hollywood Hotel here.

Executives speaking at the Sept. 15-17 event, presented by DisplaySearch, acknowledged that consumers are sampling competing digital streams and downloads. But discs’ relative familiarity and continued evolution is keeping physical media a robust business, they believe.

Just 0.6% of U.S. consumers’ monthly film spending goes to downloading movies for either purchase or rental, according to a recent NPD Group survey. The overwhelming majority of spending, about 81%, comes from buying and renting movie and TV DVDs. About 18% is from theatrical movie ticket purchasing.

When NPD asked how consumers watched a full-length movie in the past three months, 67% of respondents said they watched the film on a DVD they already owned. Far fewer said they watched the movie on a portable device or through a streaming video service, at 8% and 4%, respectively.

“Inherently, people get the idea of a disc,” said Andy Parsons, senior VP of advanced product development at Pioneer and U.S. chairman of the Blu-ray Disc Assn. Promotions Committee, during a Tuesday session. “I think [physical and digital] will exist very efficiently side by side. I can download a TV episode to get back on track with a series. And my kids watch Friends over and over on DVD. It’s not an either-or thing.”

Danny Kaye, executive VP of research and technology at 20th Century Fox Home Entertainment, added that in the next several years, 90% of every dollar spent on filmed home entertainment would be on DVD and Blu-ray disc sales and rentals, with the remaining 10% spent for downloads and streams. One key reason is physical media’s overall simplicity versus sometimes complex Internet-based delivery systems, he said.

“If the consumer is faced with a myriad of devices, it’s going to be difficult for them to buy in,” said Kaye. “You can’t have 12 boxes stacked to the ceiling. A cable or satellite box is simple. We also think [Web-enabled] Blu-ray players with Ethernet connections are too.”

Lori MacPherson, Walt Disney Studios Home Entertainment general manager of North America, agrees that people might enjoy digital entertainment, but not at the expense of physical discs. With Disney’s first digital copy title, The Nightmare Before Christmas, more people have transferred the DVD’s embedded file than have downloaded the film across the various online movie services.

“When we talk to people, we find that the avid downloaders also want to own physical discs of those same movies,” MacPherson said.

Disney is consciously protecting its physical business by holding to traditional windows that separate the rollout of a film on DVD and video-on-demand. The studio has tested bowing titles on DVD day and date with VOD but found the results “inconclusive,” said MacPherson.

“We need to be responsible about windowing to keep the business healthy,” she said, adding, “You need a lot of VOD transactions to offset the loss of a DVD sale.”

Blu-ray is not yet a fixture in households, but HDTV participants are confident it will help power physical media well into the future.

Today, upconverting standard-definition players are more popular than high-definition set-tops. Year-to-date through July, 29% of set-tops units sold were upconverters, and 11% were high-def disc players, according to NPD. About 60% were standard DVD players.

However, consumers seem to know that Blu-ray is superior and are mainly waiting for price drops before adopting, NPD found. When asked about their feelings about upconverter purchases, 47% recognized upconverters were less expensive than Blu-ray players, but only 11% said they believed upconverters were “just as good” as Blu-ray models.

Average Blu-ray pricing hovers around $399, but most consumers say they won’t buy until it drops to what they consider to be a $260 sweet spot, noted Russ Crupnick, NPD senior industry analyst. Upconverters are selling for around $70.

Additionally, among likely Blu-ray adopters (HDTV households with high-def broadcast service), 49% say they are familiar with Blu-ray, topping 34% of respondents who said the same for upconverting players.

Despite premium pricing for hardware, Pioneer’s Parsons noted that a respectable 15 million Blu-ray discs have sold since the format’s inception in 2006. He further defended the current status for Blu-ray adoption by assuring conference attendees that prices will decline in due time, but not so fast as to undercut the business.

“Prices will go down,” said Parsons. “But what people overlook is that you need a marketplace first before you start cutting prices. If there’s not enough awareness about [the technology] than low prices are besides the point.”