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Blu-ray and VOD driving US home entertainment

Written by Chris Andrews

Will leviathan Wal-Mart alter the VOD landscape?

While 2009 may have been a rocky year for retailers, it would appear that people still want to be entertained. The US home entertainment market in fact reached $20bn in 2009, driven largely by Blu-ray and Video on Demand services, according to figures from the Digital Entertainment Group released last week.

Indeed, according to the DEG, Blu-ray Disk has experienced phenomenal growth in the last year with sales up some 70% on 2008, and rentals up 48%, bringing total transactions to around $1.5bn.

The DEG has also estimated that the number of Blu-ray playback devices in US households has hit 17 million in 2009, up 76% compared to year-end 2008, with some 4.5 million devices sold in the fourth quarter alone – Happy Christmas.

“The home entertainment business is doing remarkably well given the overall economic environment,” said Ron Sanders, President of DEG and President of Warner Home Video. “We have seen tremendous growth in both Blu-ray hardware and software, consumer transactions are up and we are looking forward to seeing some stabilisation in the packaged goods sell-through business in the coming year.”

“With Blu-ray titles topping $1bn in sales and Blu-ray hardware now in 17 million US homes, the format is well on its way to mainstream consumer adoption,” said Bob Chapek, Chairman of DEG and President, Distribution at Walt Disney Studios. “With the industry’s recent finalisation of 3D specs, next year promises to be an extraordinary year for consumers to experience the expanded possibilities of Blu-ray.”

While $20bn seems a recession busting figure, transactions are actually down 5% on 2008, though this compares to a general retail decline of 6.3% according to Wells Fargo Securities. However, if we go beyond the Blu-ray story, total annual sales on Blu-ray and DVD combined was actually down by 13% to $11.4bn. This probably results from a few different factors: that the trend towards Blu-ray is indeed accelerating, so perhaps those planning on buying a player are holding off buying standard DVDs; that very cheap deals on DVDs are skewing the figures; and that more people are choosing to rent rather than buy in difficult economic circumstances. Indeed, rental spending was up some 4.2% to £6.5bn according to Rentrak Corporation’s Home Video Essentials.

And there is also, of course, VOD. An increase in digital homes and the broader availability of day-and-date video-on-demand, said the DEG, stimulated the growth of digital distribution in 2009, with consumer spending on electronic sell-through and VOD up a combined 32% to $2.1 billion. And there was rapid VOD growth in the fourth quarter, actually accelerating by 63% verse 20% in each of the previous three quarters.

This VOD growth is set to continue, particularly as ease of access improves and services are increasingly embedded within hardware. As a good example, VUDU, the streaming movie service, has recently announced that it was extending its distribution as an embedded platform to include broadband home theatres, HDTVs and Blu-ray Disc players from LG, Mitsubishi, Samsung, SANYO, Sharp, Toshiba, and VIZIO.

"In 2010, millions of broadband HDTVs and BDPs will ship to consumers with VUDU installed. It's a great achievement for VUDU and a fantastic opportunity to deliver the VUDU experience to consumers across the United States," said Alain Rossmann, Chairman and CEO of the company. "In just 6 months, from the time we launched on our first HDTV, we've increased our footprint more than ten-fold. By delivering a cloud-based architecture we have made it incredibly easy for our CE partners to embed VUDU into more products, while at the same time enabling the service to be continuously updated..."

What makes this more interesting is the, as yet unverified, rumour that Wal-Mart has its eye on VUDU, which could have some interesting results if it actually acquires it. Wal-Mart has made forays into online in past, with an ill-fated movie download service back in 2007 following a failed online DVD rental service. Perhaps it will be third time lucky, and with Wal-Mart selling CE devices, physical disks as well as a VOD service, we could see some new models for purchase and delivery developing – with Wal-Mart gaining a huge amount of customer data in the bargain. How this will affect VUDU’s existing relationships remains to be seen, and as it stands both companies are remaining tight lipped about any deals in the works.

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