Good News in the Home Entertainment Business and Blu-ray

Via the M & E Daily, the Media & Entertainment Services Alliance’s daily newsletter, we heard some news which everyone in the home entertainment industry has been hoping for. After several years of decline, consumer spending on discs and digital in the first half of 2012 grew 1.43% compared to the first half of 2011. Spending has been declining, the result of a number of factors including a down economy, the rise of less expensive digital downloads and overall changes in viewer behavior.

While this change is good news, it isn’t all good. What consumers are spending their money on is also changing, with digital now accounting for a rather significant portion of this spend, 28.75%. While discs represent a relatively high-margin product for studios and distributors, digital is less profitable, even when accounting for the decreased manufacturing, transportation and inventory costs.

Yet the M & E Daily article pointed out that Blu-ray sales continue to grow even while digital grows too: On the physical side, Blu-ray disc sales continued to increase, with first-half revenues up 13.3% compared to the same period in 2011. So it’s possible that consumers are seeing the value of Blu-ray, with its top-quality audio, superior picture and advanced features for some titles, while turning to the convenience of digital downloads for casual viewing.

The largest players in the market are adjusting their marketing strategy to address this mix of interest and economics. Jeff Baker (no relation), EVP and GM of theatrical catalog for Warner Home Video , the biggest distributor in the home entertainment business, notes. “In the under $10 retail segment of consumer purchases for Blu-ray in 2011, 15% of the business was under $10 purchases. We’re estimating this year 35% of the business will be in the under $10 segment. So consumers are saying, if we can get the price down low enough, they do want to replace their DVD library with Blu-ray films.”

This readjustment of the home entertainment market will continue to evolve over the next few years, certainly. With more consumers viewing video via tablets and more tablets hitting the market, particularly iPads, digital will certainly continue to grow. But these numbers indicate that Blu-ray will continue to be a viable home entertainment product, so it’s much too early for anyone, particularly mid-sized and niche distributors who may have been holding back, to count Blu-ray out.