Digital-media sales stalled in Q1

DIGITAL: Ad-supported revenue falls on economic downturn

By Danny King -- Video Business, 6/30/2009

JUNE 30 | DIGITAL: Long expected to surge as demand for such packaged media as DVDs flattens, digital media sales stalled during the first quarter as the economic slowdown cut advertising spending needed to support many media-content Web sites, according to one report.

Sales of digital video, music and videogame content for the 12 months ended March 31 rose less than one percent from a year earlier, slowing from 3.4% and 6.6% trailing-twelve-month sales increases for the two previous quarters, Strategy Analytics said in a statement. Consumer paid digital sales rose 2.9% for the year ended March, while ad-supported digital-media revenue fell 0.7%, according to Jia Wu, analyst at Strategy Analytics and author of the report.

DVD industry analysts and executives are counting on growth in digital-media sales to prop up a U.S. home entertainment industry in which spending in 2008 fell 5.7% from a year earlier to $21.7 billion, despite Blu-ray Disc sales tripling to about $750 million, according to data compiled by Video Business and Rentrak.

Some analysts have estimated that annual sales of digitally delivered film content will more than double within the next five years to between $3 billion and $4 billion.

Such growth, however, might be delayed by an economic downturn that has appeared to curtail spending on both packaged and digital media.

"Although many digital media companies will still choose the advertising revenue model given the relative ease of gaining user traffic, Strategy Analytics believes that the consumer-paid model is more resilient in the recession as it maximizes the value of content," Wu said.

Still, the research firm, which polled 32 digital-media companies for the report, said digital-content providers might be able to resurrect growth by expanding their reach overseas as the U.S. economy regains its footing. Digital-media companies not based in the U.S. saw sales for the year ended March increase 4.2%, though that was still a slowdown from a 6.2% trailing-twelve-month increase for the fourth quarter, according to Wu.