Netflix, Redbox Make Gains in Home Video Market as DVD Sales Continue to Suffer

"Inception" generated 65 percent of its first-week sales from Blu-ray, a record for a high-profile new release.
"Inception" generated 65 percent of its first-week sales from Blu-ray, a record for a high-profile new release.
 Warner Brothers Pictures

Indeed, delaying the availability of new releases to Netflix and Redbox hasn't had much of an impact on the sell-through business. DVD sales continued to suffer as 2010 progressed. But on the bright side, Blu-ray Disc sales soared, posting a healthy year-over-year increase of 80 percent as of the end of September, according to DEG figures. In December, Inception generated 65 percent of its first-week sales from Blu-ray, a record for a high-profile new release. And during the Black Friday consumer shopping frenzy, Blu-ray Disc players, many of them selling for well below $100, were the sleeper hit, with sales of more than 400,000 units, a 50 percent increase from Black Friday 2009.

"It's undeniable that DVD sales have softened, but Blu-ray will remain a growth area into the future," said David Bishop, worldwide president of Sony Pictures Home Entertainment. "As HDTVs increasingly become a staple in worldwide households, the hunger for high-definition content will continue to feed strong growth in the Blu-ray market."

Studio optimism for Blu-ray is fueled by the arrival of 3D for the home, using the Blu-ray platform to re-create the 3D theatrical experience that has been such a bonanza for movies on the big screen.

"The biggest story of 2010 for our industry was certainly the launch of Blu-ray 3D," said Lori MacPherson, executive vp and GM of Walt Disney Studios Home Entertainment. "The opportunities that it presents for creative and immersive in-home entertainment are immense."

Digital delivery, like Blu-ray, posted impressive gains in 2010. The download-to-own market, which rose 37 percent to $432 million in the first three quarters of the year, remains dominated by Apple iTunes. But the streaming, or VOD, market -- which posted a 20 percent increase to $1.2 billion during the same time frame -- has flourished on both cable and the Internet.

Netflix has solidified its position as one of streaming's biggest drivers, chiefly through an inexpensive monthly plan that lets customers stream movies as well as rent physical discs. In November, Netflix launched a streaming-only plan in the U.S., two months after bowing a similar plan in Canada. Netflix says that more than 60 million consumer electronics products have been sold this year featuring Netflix streaming, ranging from Xbox consoles to Blu-ray Disc players -- a total of more than 200 different third-party devices.

But these impressive gains certainly don't mean the disc is dead, or even dying.

"A business that serves its customers well and remains flexible during times of transition or technological innovation does not just evaporate," MacPherson said. "Through our various product offerings and distribution partners, we are focused on providing our consumers with what they want, when and how they want it."

As an example, she cites the "combo pack," which Disney pioneered. Combo packs include a DVD, Blu-ray Disc and digital copy of the same movie, "providing greater value and usage opportunities for families," MacPherson said.

"Packaged media still reigns supreme in the home," Kornblau added. "It is clear that consumers continue to remain highly engaged in our category, as evidenced this year with the enormous success of several tentpole titles like Despicable Me. Total transactions across both physical and digital are up slightly from last year, continuing the upward trend we've been seeing for the past several years. Equally telling is the fact that physical discs accounted for more than 80 percent of consumer dollars spent this year -- a number that we don't expect will shift substantially in 2011."

"Packaged media is not dying," added Steve Nickerson, president of Summit Home Entertainment. "It is simply a very large, but mature, product category that is being affected by newer consumer options that are in their early stages of adoption."

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