Last week, at the TVNext Conference in San Jose, I moderated a panel entitled Myth vs. Reality - Surviving and Thriving in the New TV Ecosystem. One of the questions I asked the panelists was whether the entire revenue pie for in-home entertainment - subscriptions, pay-per-view, ads etc. - would grow, shrink or stay the same in 2016. All of the panelists (consisting of representatives from Rovi, Disney, Discovery and Redux) agreed that the pie would get bigger, an opinion which shocked me. This week the Digital Entertainment Group (DEG) reported on how the pie had changed between 2010 and 2011 and the numbers show growth does not seem to be in the cards.
According to DEG, total consumer spending on entertainment shrank 5% between 2010 and 2011. Physical disc sales fell 18% while online digital sales increased a paltry 4%, representing just 3% of the total. So, are consumers just watching fewer movies at home than last year? Simply put, the answer is no. Total physical disc rentals increased 13% overall with huge increases in DVD-by-mail (46%) and dollar kiosks (40%). Clearly, consumers are swapping high cost disc purchases for low cost disc rentals. The lone bright spot in the data was the healthy increase in Blu-ray sales (up nearly 11%), although this was nowhere near enough to compensate for the drop in DVD sales.
To be fair to the panelists, this is not an apples-to-apples comparison. In my question to them, I did not call out disc sales and rentals specifically and DEG's numbers do not include advertising. However, I think it clearly shows consumers are looking for cheaper alternatives and, when they find them, they switch.
In the coming months, we will see many more video services joining the fray online. These services will have a radically different makeup to the usual fare from PayTV providers. Some will appeal to specific niches and some will have a more mass market appeal. All will have a different cost and revenue structure than traditional TV. As entertainment options multiply online, will consumers be able to find lower cost alternatives to their PayTV subscriptions? It is highly likely that at least some will. By 2016, with more options still, that home entertainment revenue pie could be looking considerably smaller than it does today.
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