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DEG Report Shows Discs Still Tower Above Online Sales, Rentals

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Blame it all on Avatar, at least when it comes to DVD sales. But, also blame it on Redbox when it comes to online video rentals and sales.

The Digital Entertainment Group (DEG), a member-based group of studios, retailers, and electronic delivery firms, released a report this weekend showing that DVD sales have fallen off precipitously in the second quarter of 2011 versus the same timeframe in 2010. The report also shows that online video sales are growing slowly.

"Comparisons to last year's sales are highly skewed," DEG said in its report, citing the fact that Avatar's release generated sales of almost 12 million discs in its first month of release in Q2 2010. "Yet the underlying numbers in the latest quarter show encouraging signs."

Two of those encouraging signs come from the online rental and sales of blockbuster entertainment, though DEG cautions that online video may still have significant competition from the physical medium.

"Electronic sell-through is up four percent," the report states, showing that electronic purchases of movies (not rentals) have risen from $259 million to $270 million between the first half of 2010 and the same timeframe in 2011. 

How does this compare to physical sales of DVDs? In the same time period, DVD sales dropped over 18 percent from $4.7 billion to just under $3.9 billion.

The drop in blockbuster entertainment sales was not as great when electronic sell-through was included, accounting for a drop of only 17 percent against last year's almost $5 billion in sales.

Still, electronic sell-through faces a steep curve, as it accounts for only 6.5 percent of total home entertainment content sales. Even the addition of video-on-demand rentals of blockbuster entertainment, which itself is up four percent over the same period last year, only accounts for roughly 20 percent of all home entertainment media consumption in the U.S.

Why are electronic sales lagging? Three trends appear to affect electronic sell-throughs: ownership of physical media, the rise of the Blu-Ray player, and the relative convenience of renting physical media.

The first, physical ownership of a disc, be it Blu-Ray or DVD, is a topic we've covered at length before on StreamingMedia.com 

"I realize DVD is a dead format, but having a physical copy of a film (not digital) is the only way to guarantee you can watch a favorite movie whenever you want," stated a Deadline.com forum discussion member commenting on the DEG report. "I'm definitely buying fewer DVDs these days, but my existing DVD library ain't going anywhere."

A few commenters countered with the issue of DVD players being a dying technology.

"It is the digital age," wrote commenter Aeiouy. "Stop trying to sell eight-tracks and cassette tapes."

Yet DEG points out that the physical media player market is actually growing.

"In the second quarter, the number of Blu-ray homes grew 16 percent over 2010 (inclusive of BD set-tops, PS3s, and HTiBs)," the DEG report states, "bringing the total household penetration of all Blu-ray compatible devices to more than 31.6 million U.S. homes."

This rise in Blu-Ray players, many of which now have Wi-Fi or Ethernet access to online video content, could lend credence to the claim that consumers are watching more online video of the non-blockbuster variety.

While this may very well be true, it appears that Blu-Ray sales themselves have risen almost 10 percent year over year, even while DVD sales are plummeting.

Finally, the question of accessibility to physical discs is an important factor. Whether rentals occurred through subscription services such as Netflix or Blockbuster-a category which grew over 44 percent year-over-year to $1.5 billion for the first half of 2011-or through kiosk sales from services such as Redbox, the ability for a consumer to watch a movie through convenient physical discs remains a challenge in the quest for online video sales and rentals to match their offline counterparts.

The primary factor in the current stagnant economy may be as much about price as it is about convenience.

"Nobody wants to dare pin the culprit on the simple fact that every Walmart has a few Redboxes positioned at the entrance," wrote Deadline.com commenter Frank Tien. "Why buy the movie when you can watch it overnight for a buck. And a buck a night is less rental value than Blockbuster's old $4 a night."

Tien's comments point out that online video rental prices for VOD are still based on the old Blockbuster model.

A recent comparison of Amazon's rental price for the newly released real-life drama SoulSurfer showed that Redbox rentals were $1.10 with tax versus $3.99 from Amazon's on-demand service, with two locations within one mile of my home in a small town in Tennessee. Physical accessibility is even greater in larger cities.

"When I first moved to my neighborhood," wrote Tien, "we had five Blockbuster videos and a Hollywood video in three miles of my house. In less than five years, they're all gone. But the area is now swarming with Redboxes. There's three of them at a single intersection."

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