Blu-ray sales surging, but more growth needed
PHYSICAL: Blu-Con: Studios believe home entertainment revenue will rebound in 2012
By Susanne Ault -- Video Business, 11/3/2009
NOV. 3 | PHYSICAL: BEVERLY HILLS, Calif.—The home entertainment industry is on its way to recovery due in large part to Blu-ray Disc, according to retail and studio participants at Tuesday’s Blu-Con conference here.
Merrill Lynch’s Jessica Reif-Cohen (far l.) moderated a Blu-Con 2.0 studio presidents panel with (l. to r.) Fox’s Mike Dunn, Warner’s Ron Sanders, Universal’s Craig Kornblau and Sony’s David Bishop. The conference was held in Beverly Hills, Calif., on Nov. 3.
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Best Buy is aggressively merchandising both Blu-ray players and titles, rallying around the products as a key expanding business. In particular, Blu-ray players are this year’s fastest-growing consumer electronics product, surging 112% in year-over-year sales, Mike Vitelli, executive VP of consumer operations group at Best Buy, said in a keynote. That tops the 106% and 85% jumps for popular ebooks and netbooks, respectively.
Best Buy anticipates 18.6 million Blu-ray players (including PlayStation 3 videogame consoles and Blu-ray set-top players) to sell in 2010. That marks a significant hike from the 10 million units of Blu-ray hardware expected to sell this year.
Blu-ray players currently make up 66% of Best Buy’s home entertainment hardware category, compared to 35% two years ago. Blu-ray titles comprise 25% of the retailer’s video software, up from 13% two years ago.
“This is why we are bullish about Blu-ray,” said Vitelli.
Retail and studios acknowledge that consumers are still reeling from the recession, which is continuing to negatively impact the entire home entertainment business. The momentum Blu-ray has enjoyed has not been enough to offset double-digit percentage slides of DVD. But when combining digital and Blu-ray gains, studios forecast the home entertainment business will return to flat to growing in 2012.
“In 2012, we’ll see the growth trend again,” Mike Dunn, 20th Century Fox Home Entertainment president, said in a panel moderated by analyst Merrill Lynch Jessica Reif-Cohen.
Dunn echoed other studios in noting that consumer reluctance to spend money is thawing. As proof, he pointed to healthy sales of relatively high-priced title configurations, including the Blu-ray version of Fox’s Ice Age 3: Dawn of the Dinosaurs.
"Thirty-five percent of sales are in the premium SKUs: Blu-ray and the two-disc special edition,” said Dunn. “The consumer is there.”
Adams Media Research backed up studio claims with projections indicating disc unit sales will rebound between 2011 and 2013, due to pricing declines on standard DVD and Blu-ray formats. By 2013, Blu-ray pricing will be closer to today's standard DVD average retail price of $15. Standard DVD should fall to about $10.
The home entertainment business' compound annual growth rate (CAGR) will climb 3.3% between 2009 and 2013, when accounting for all paid transactions, spanning digital (electronic sell-through/rental and TV video-on-demand) and physical media.
"We are going to be restoring modest growth, and lower prices on both formats can drive volume," said Tom Adams, president of Adams Media Research.
Beyond Blu-ray, video-on-demand is another rising area for studios, especially when offered day-and-date with the DVD/Blu-ray release.
“We see huge spikes in VOD activity” with day-and-date delivery, Warner Home Video president Ron Sanders said in a panel. “But it does take a while for the consumer to know it’s available on VOD” that quickly.
Dunn said Fox sees VOD revenue climb 20% when titles are offered day-and-date versus the traditional window.
Things might be on the right track for home entertainment, but the business still faces obstacles, even with Blu-ray adoption.
Best Buy’s Vitelli complained that Blu-ray titles are too limited in use, confined mainly to the one household player in living rooms. He believes that digital copy helps boost Blu-ray use but dislikes that studios charge more when a copy is included on the discs.
“It’s like if you bought a cup of coffee, and they charged you a different price depending on where you drink it,” said Vitelli. “That’s not going to go over so well.”
Best Buy thinks the industry needs to do a better job of educating the public about the advantages of Blu-ray. Store research shows that 68% of today’s customers are unfamiliar with the high-definition format.
“People in stores still ask our employees about why they need a Blu-ray player,” Vitelli said. “The situation [with Blu-ray] is improving, but we’re still not there.”
