DVD industry goes digital as sales slump

The DVD industry is seeking more ways to monetise its content in a digital age, after figures showed a significant decline in sales of the physical medium.

According to industry body the Digital Entertainment Group (DEG), worldwide sales of DVDs and Blu-rays dropped by 8% year-on-year to $10.9bn (£7bn) in the first nine months of 2010.

Over the same period, the market for digital distribution - both electronic sell-through (EST) and video-on-demand (VOD) - grew by 23% year-on-year to $1.7 billion.

Home entertainment consumption is changing rapidly as digital platforms grow in prominence, including tablet computers, games consoles and web-connected devices. On-demand is increasingly becoming the primary way for consumers to access movies and TV shows, either via transactional purchase or subscription.

In the US, the massive success of VOD subscription service Netflix contributed to the decline of video rental giant Blockbuster, which filed for bankruptcy in September.

British firm LoveFilm has been growing strongly in Europe, including recent expansion onto Samsung TVs, Sony's PlayStation 3 and other emerging home entertainment platforms.

LoveFilm's core business involves postal DVD rentals, but the firm has been "surprised" by the uptake for its digital offering and expects it to smash initial projections by the end of the year.

This month, supermarket giant Sainsbury's also launched a new digital download service offering music and movies, including new releases and classic titles.

The growth of these services has impacted heavily on physical DVD and Blu-ray sales - in a similar way to which the music industry saw a decline in CD sales as digital downloads became more prominent.

Even DVD and Blu-ray box-sets of hit BBC shows have been struggling to generate major sales, despite major marketing campaigns run by the corporation. According to The Guardian, series five of Doctor Who and new drama smash Sherlock have only managed relatively meagre sales of 17,000 and 54,000 copies respectively since their releases.

BBC Worldwide, the corporation's commercial arm, returned a healthy profit of £40m in 2009 from its 2entertain DVD publishing arm, which it fully acquired in March this year.

However, Worldwide's director of home entertainment Paul Dempsey told The Guardian that there's "no doubt that the physical DVD market will be down this year".

He said that the emergence of on-demand services such as BBC iPlayer has meant that people no longer need to use DVDs as a way to catch up on shows that they have missed.

"There'll still be collectors and gifters who want high-quality, beautifully packaged DVDs. [But] what is more challenging for us is those consumers who used to come to DVD in distress because they missed an episode and had to wait for the DVD. Now they are being satisfied by great on-demand services like iPlayer," said Dempsey.

"My five-year plan is to see profits around the same levels as they are now. But it's going to be tough to maintain margins at the same levels given the challenges we face, so we need to develop new revenue streams around digital. We feel a great responsibility because what we do keeps great UK content on our screens."

The major Hollywood studios are facing the same thorny challenge as they seek to protect the huge revenues drawn from selling their content after its theatrical release.

James Cameron's blockbuster smash Avatar shifted 6m copies in just three weeks after its DVD release, but 2010 hit Top Story 3 is being sold at knockdown prices by many UK supermarkets as a loss leader in their Christmas promotions.

However, the declining DVD and Blu-ray market represents an opportunity for entertainment firms to unlock the seemingly boundless revenues heralded by digital platforms.

Earlier in the month, The Walt Disney Company launched Disney Movies Online in the US for users to watch and rent films online. The firm also partnered with retail giant Wal-Mart to offer a free 'digital copy' of Toy Story 3 with every purchase of the physical DVD.

DEG president Ron Sanders, who is also president of Warner Home Video, said: "While we continue to encounter tough market conditions, there are a number of positive trends emerging, particularly in some of the industry's key growth areas.

"Blu-ray continues to show strong growth in every category, new release packaged media sell-through is up, and digital distribution is gaining significant momentum as we move into the fourth quarter."

Dempsey believes that a possible model for the BBC going forward could involve tapping into the corporation's extensive archives to enable viewers to download classic content via a micropayments system.

He said: "As the income per physical piece of content is reduced, we can unlock more from the BBC archive in the digital world and that makes the economics much more positive." (from DS)