Pondering the Future of Home Entertainment

Those of us in who are part of the supply chain for the home entertainment industry always have a weather eye turned toward both ends of the chain because trends and realignments at either end bring change for those of use delivering services and technology in between. At the beginning of that chain lies the studios, which supply the content. While the studios had a great run during the days of DVD as sell-thru ruled supreme, the market has become much more democratic and diffuse. The rapid change of the home entertainment distribution models have put studios in a revenue squeeze. Distribution executives at every level are searching for ways to restructure their business models to fit the new business reality. At the opposite end lies the consumer, whose choices for enjoying that content have expanded tremendously over the past 5 years. With the introduction of Blu-ray, the rise of VOD and the tremendous surge of mobile and tablet devices, consumers have options available to them which had only been the musings of sci-fi writers just a couple decades ago. For the past few years, the trend in the home entertainment industry has been down — fewer discs sold, smaller margins on VOD licenses, fewer hours consumed as free alternatives proliferated, consumers cut back in the face of a pretty strong economic downturn and business innovation ruthlessly attacked margins. While the latest figures don’t show a definitive turning of the corner, it’s nice to see the numbers coming from the Digital Entertainment Group which show that the bottom may be in sight.

Consumer spending on home entertainment in the first nine months of this year is up 1% from the first nine months of 2011, according to the latest report from DEG: The Digital Entertainment Group.

The lift — which reflects a slight 0.24% uptick in the third quarter after a 1.4% gain at the year’s mid-year mark — is once again attributed to gains in Blu-ray Disc sales, subscription streaming and electronic distribution...

Blu-ray Disc spending continued to post significant gains, rising 13% in the third quarter alone. Sales of catalog titles fared even better, rising 22% between June 1 and Sept. 30, 2012, from the comparable period a year ago.

Subscription streaming spending nearly tripled, from $464 million in the first nine months of 2011 to $1.68 billion in 2012 as of Sept. 30.

There are still some exciting times ahead of us. The latest rumor of Microsoft buying Netflix is a great example of how the home entertainment industry still has consolidation and restructuring moves ahead. The fact remains, however, that Hollywood movies and television shows are one of the best products produced in the US, whether consumed domestically or abroad. That, I have confidence, won’t be changing soon.