Physical media challenged, but still preferred

NPD says maintaining retail selection is key

By Susanne Ault -- Video Business, 2/3/2009

FEB. 3 | Consumers overwhelmingly prefer physical over digitally-delivered entertainment, but discs’ selling points nevertheless need sharpening, according to participants at Tuesday’s Future of Packaged Media conference in Los Angeles.

F.Y.E., Virgin Megastores and other bricks-and-mortar chains are shutting outlets, but more people are still buying DVDs than streaming or downloading content, according to NPD Group research.

When NPD asked people about their home entertainment purchases over the past three months, 48% of respondents said they bought a DVD or Blu-ray Disc. That compares to 2% who downloaded a movie or TV episode, and 2% who digitally rented a movie or TV show. In videogames, about one-third of respondents said they bought packaged software for a console, and fewer than 5% said they had digitally downloaded a game.

Although downloading shouldn’t be considered an enemy to DVD, packaged media does face a serious threat from people losing their appetite for the category, said NPD and others at the event.

“It’s important for Wal-Mart to edit their assortment, where they don’t need 200 SKUs of toothpaste,” NPD VP/senior industry analyst of entertainment Russ Crupnick said during the conference, presented by the Entertainment Merchants Assn., Media Tech and the Content Delivery Storage Assn. “But when we asked people why do you shop, and what gets them off the couch, [they say] it’s selection. As retail consolidates more and more, we discourage customers from coming into the stores.”

Crupnick said that survey respondents said selection at retail was a bigger shopping motivator than product value and staff experience.

He also believes that the content itself needs to be especially compelling, since people’s libraries are already full. This is the case for both CDs and DVDs.

“The challenge is satisfaction,” said Crupnick. “People are becoming apathetic. And this will be the same [problem] for DVD. There needs to be something convincing for people to expand their collections.”

Conference speaker Ted Sarandos, chief content officer at Netflix, noted that DVDs’ tendency to pack on trailers could push some people to digital options. Netflix’s own streamed films unspool automatically upon purchase without any pre-show interruptions.

“There is risk with the premium of the [disc] experience,” said Sarandos. “How long does it take to start a movie? Streams are an immediate experience.”

Consumer interest in DVD has slightly eroded over last year, but the decline is not as pronounced as it has been for CD, according to NPD. Compared to a year ago, 18% of respondents said they were more likely to buy a DVD, and 32% said they were less likely. With music, 14% said they were more likely to buy a CD; 38% less likely. Also, 41% said they were more likely to buy a music download, 19% less likely. NPD doesn’t yet have research on people’s tastes for movie downloads.

Still, Crupnick warned that “we don’t want to be doomed to repeat history” where DVDs imitate CDs’ fall to another form of entertainment.

“The format war is between us and the consumer, not digital,” said Crupnick. “Are we merchandising, shelving the product correctly? We need to give consumers the experience that they want.”

Blu-ray’s ability to enhance a physical disc with Web-enabled features should be a boost to packaged entertainment, helping physical and digital media coexist, noted Crupnick and Sarandos.

Almost half of people say they would be likely to purchase Blu-ray players when they understand that BD Live is a feature, according to NPD. Also, 54% of people said they would more likely trade up to a Blu-ray new release from a DVD if the Blu-ray was enhanced with BD Live.

One big part of Netflix’s strategy is to offer its streaming services on as many hardware devices as possible, including Web-enabled LG and Samsung Blu-ray set-top players. Plus, Netflix’s Blu-ray and instant streaming offerings are both being embraced at a healthy clip.

“We’ve doubled our Blu-ray install base since summer,” said Sarandos. “And we’ll have more than 1 million Blu-ray users by the first half of this year…. And by the end of last year, we had a couple million streaming users.”

DVD mail shipments overall should grow over the next five to 10 years, according to Netflix.

Sarandos added, “Packaged and digital will co-exist for a long time.”