Theatrical Comeback Gives Digital Transactional Home Entertainment Business a Q2 Bump

The theatrical resurgence is paying off for the transactional home entertainment business, at least in the digital segment.

Consumer spending on digital movie sales, or electronic sellthrough (EST), rose 17.4% in the second quarter of 2023 to an estimated $695.1 million, up from $592.1 million in the second quarter of 2022, according to the latest quarterly estimates from DEG: The Digital Entertainment Group.

Spending on video-on-demand (VOD), or digital rentals, rose nearly 4% to an estimated $480.5 million in the quarter that ended June 30, up from $462.2 million in the comparable quarter last year.

The DEG reports digital sellthrough spending on theatrical titles was up 26.5%, while VOD spending on theatrical titles rose 6.4%.

Spending in the first quarter of this year was down in both categories by 12.3% (EST) and 11.5% (VOD), respectively.

For the first half, consumers spent an estimated $1.26 billion on EST and $924 million on VOD, up 1.9% and down 4%, respectively, from spending in the first half of 2022.

“The first quarter decline and second quarter gain were driven in large part by release schedules and windowing, with several large titles releasing in the very last week of the first quarter, including Avatar: The Way of Water and Creed III,” according to the DEG.

Top transactional films in the first half of the year include 65 (Sony); 80 for Brady (Paramount); Ant-Man and The Wasp: Quantumania (Disney); Avatar: The Way of Water (Disney); Creed III (MGM); Dungeons & Dragons: Honor Among Thieves (Paramount); Evil Dead Rise (Warner Bros. Discovery); John Wick: Chapter 4 (Lionsgate); A Man Called Otto (Sony); Puss in Boots: The Last Wish (Universal); Shazam! Fury of the Gods (Warner); and The Super Mario Bros. Movie (Universal).

Combining EST and VOD, total transactional video-on-demand (TVOD) was down 12% in Q1, but up 11.5% in Q2, finishing the first half down just 0.7%.

Disc sales and rentals, in contrast, continued to free fall, with spending in the second quarter coming in at just $392.4 million, down 26.3% from the second quarter of 2022. The estimated first-half consumer spending total was just $753.9 million, down 28% from spending in the first half of 2022.

Combining all sources of transactional home entertainment (physical disc sales and rentals, EST and VOD), the segment narrowed declines from 17.53% in Q1 to 1.17% in Q2, finishing the first half down 9.5%

Overall, home entertainment spending rose 14.8% to an estimated $10.4 billion in the second quarter and 14.7% to $20.5 billion in the first half, the DEG reported — driven, as usual, by double-digit gains in subscription video-on-demand (SVOD) spending.

Despite reports of subscription fatigue and sub losses at the major streamers, the DEG, citing Omdia data, maintains consumer spending on SVOD rose 18.1% in the second quarter to $8.8 billion and 20% in the first half to $17.5 billion. If those estimates are accurate, subscription streaming now accounts for about 85% of all consumer home entertainment spending.

Based on Media Play News research estimates of physical media sales (DEG no longer separates physical sales and rentals), sellthrough transactions account for about 9% of the home entertainment market, and rentals about 5.3%. Physical media still accounts for about 25% of all transactional revenue, and around 30% of sellthrough. Disc as a whole, compared with streaming, accounts for under 4% of the home entertainment market.

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Ad-supported premium AVOD and FAST content generated estimated advertising revenue of $4.2 billion in the second quarter of 2023, according to Omdia, as more major streamers added cheaper subscription plans with ads. Omdia estimates ad revenue grew 10.5% in the second quarter and 6.8% in the first half, to nearly $8.2 billion.

Consumer Q4 Home Entertainment Spending Up 9%

Home entertainment spending in the fourth quarter of 2019 reached $6.8 billion, up 9% from $6.3 billion spent in the final three months of 2018, according to data released by DEG: The Digital Entertainment Group.

Box office revenue for the corresponding period fell 3%.

Subscriptions to streaming services such as Netflix, Hulu, Amazon Prime rose 26% from the same period a year ago to $4.3 billion, comprising 63% of total home entertainment revenue. New services Disney+ and Apple TV+ became available during the fourth quarter.

Electronic sellthrough of movies and TV shows rose just under 1%, to $670 million in the quarter. VOD, the digital equivalent of a film rental, dropped 7%, owing mostly to consumers cord-cutting their cable packages. However, VOD revenue through Internet services grew 10% in the quarter, according to the DEG.

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Sales of packaged media — Blu-ray and DVD formats — dropped 18% during the three-month period, from $1.2 billion a year ago to just under $1 billion. Quarterly packaged-media rentals were down 19% to $338 million.

Still, it was the best quarter of the year for disc sales, thanks in large part to holiday shopping. On the transactional side of home entertainment (excluding SVOD), consumers opted for the DVD or Blu-ray version of a title 54% of the time in the quarter, compared with 46% for digital versions. That’s up from 49.9% from the first three quarters of the year, though it’s down from the 58% share packaged media had in Q4 2018, and a 66% share in Q4 2017.

Outside the realm of SVOD, consumers still prefer owning their titles over renting them by a nearly 2-to-1 margin, with disc and electronic sellthrough accounting for $1.69 billion in the quarter, or 67% of transactions, compared with $818.1 billion for disc rentals and VOD. That’s a slightly better margin than the year as a whole, which saw ownership account for 63% of transactions, $5.88 billion compared with $3.39 billion for rentals.

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Top-selling titles in the quarter included Disney’s Toy Story 4 and The Lion King remake, and Sony Pictures’ Spider-Man: Far From Home, according to Media Play News research estimates.