Looking Back at 2022: Streamers Stumble and Turn to Ads as Hollywood Bemoans Erosion of Traditional ‘Second Window’

NEWS ANALYSIS — As the nation slowly emerged from the COVID-19 pandemic, home entertainment faced a whole new set of challenges and concerns in 2022.

Subscription streaming, the golden child of the pandemic era, began showing cracks, beginning with Netflix posting significant subscriber losses in the first and second quarters of the year, which sent the streamer’s stock price tumbling. Then came the Walt Disney Co.’s sacking of Bob Chapek from the CEO slot, in part due to the high costs of Disney+, a key factor in the company’s sinking stock price. And HBO Max, after an April merger between Warner Bros. and Discovery, ended the year with a rash of film and series getting dumped to cut costs and prep the service for a union next year with Discovery+.

“2022 definitely felt like a roller coaster of recalibrated expectations for our business on Wall Street, with M&A, growth amid higher churn for direct-to-consumer subscription services, and escalating costs for content production and acquisition,” observes Amy Jo Smith, president and CEO of DEG: The Digital Entertainment Group, the digital entertainment trade association. “Even when the ride was bumpy, though, there were a lot of bright spots, including the growth of ad-supported streaming services (AVOD and FAST) and a wider range of subscription services, the return of in-person events to foster cross-industry collaboration, and, most importantly, consumers’ deep and abiding engagement with premium content across distribution models including transactional, subscription and ad-supported.”

“2022 was another growth year for the OTT business, with SVOD still the leading revenue contributor, but with AVOD and FAST growing rapidly and changing the way that consumers access and enjoy motion picture and episodic content in the home,” adds Mark Fisher, president and CEO of OTT.X, the streaming trade association. “And TVOD remains the primary way that consumers conveniently access new releases and catalog content, much of which is only available via VOD.”

Subscription streaming remains the dominant way in which consumers enjoy entertainment at home or on the go, and in fact grew its overall market share to nearly 85% of all consumer spending on home entertainment, according to the latest DEG numbers.

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But the King Midas touch first felt during the heyday of the pandemic, when theaters were closed and people were asked to stay home, is clearly gone — as evidenced by the launch late in 2022 of cheaper, advertising-supported subscription plans by both Disney+ and Netflix in an effort to boost revenues.

The jury is still out on whether the gambit will succeed, although early reports suggest Netflix, at least, is running into a little trouble. Research house Antenna in December reported that the $6.99 “Basic With Ads” plan nabbed just 9% of new Netflix domestic subscription sign-ups during its first month of availability, while only 0.1% of Netflix’s existing U.S. subscribers switched to the ad-supported option. At the same time, Reelgood found hundreds of movies and TV shows are missing on the ad-supported tier.

Bill Rouhana

“For SVOD services, the major development for 2022 was the sobering reality that their business models, as currently constructed, are not sustainable — as subscriber growth has slowed and content costs have continued to escalate,” observes Bill Rouhana, CEO of Chicken Soup for the Soul Entertainment, a leading provider of free streaming content. “SVODs were spending heavily on original content to differentiate their services and ultimately ran up huge debts. That, combined with an economy that’s in a recession, and consumers cutting back on paying for multiple SVOD services, makes for a challenging future, with maybe one or two winners.”

Not surprisingly, then, the biggest success story for home entertainment in 2022 is the proliferation of completely free streaming content, both on-demand (ad-supported video-on-demand, or AVOD) and linear (free ad-supported streaming television, or FAST).

In this part of the business, one of the biggest developments of 2022 was the August acquisition of Redbox by Chicken Soup for the Soul Entertainment, which gave the combined company more than 145 FAST channels on top of its already strong presence in the AVOD market with Crackle and other services.

“Chicken Soup for the Soul Entertainment massively scaled for the future in 2022 with the acquisition of Redbox,” Rouhana said. “We’ve been working to integrate the companies and are close to finishing that.”

Stefan Van Engen, SVOD of content programming and partnerships at Xumo, a premium FAST service, maintains that “FAST has become an industry darling in the past year.  From independent content owners to major media companies, everyone wants to participate.”

Meanwhile, the fallout from home entertainment’s “streaming uber alles” philosophy has had a pronounced effect on Hollywood, as the financial realities of producing content for primary consumption on all-you-can-watch streaming services led to a dearth of theatrical feature films, particularly after the year’s midpoint. According to Comscore, just 22 films opened theatrically over the summer, half as many as in 2019, the last pre-pandemic year. Not surprisingly, box office revenues for the year are expected by Gower Analytics to clock in at $25.8 billion, up 21% from 2021 but a significant drop from the $42.3 billion generated in 2019, the last pre-pandemic year.

Further impacting Hollywood’s bottom line in 2022 was the continued erosion of what was once the biggest post-theatrical revenue-generator, disc (DVD and Blu-ray) and, to a lesser extent, a la carte digital sales and rentals (known as TVOD, for “transactional video-on-demand”).

“In the rush to feed the big streaming services, many of them under the same corporate ownership, the big studios have effectively turned their back on what has traditionally been their biggest post-theatrical revenue generator,” says one veteran industry observer. “Without this critical component of the movie food chain, billions of dollars are being flushed away.”

Indeed — movies rarely generate enough money from the box office to turn a profit. In the not-too-distant past, even films that lost money at the box office more than made up the difference through robust packaged-media sales, which for a time even exceeded theatrical revenues, as well as foreign licensing rights. Projected disc sales even became a factor in studio decisions on whether to greenlight movies or not.

But as subscription streaming became the dominant form of home entertainment consumption, Hollywood seemed to lose interest in this once-crucial second window. Sure, the studios tried getting people to buy movies digitally, but consumers weren’t biting, particularly since they could get a whole month’s worth of entertainment from Netflix and the other streamers at roughly the same cost of a single digital movie.  Discs, meanwhile, were all of a sudden seen as yesterday’s technology. In 2006, the year Blu-ray Disc was launched, disc sales brought in nearly $17 billion in consumer spending. In 2021, the latest full year for which figures are available, the total was less than $2 billion.

In the first nine months of this year, according to DEG estimates, 84% of the total consumer spend on home entertainment, or $22.3 billion, went to subscription streaming services. Consumers spent just $4.7 billion on physical and digital purchases and rentals. Combined purchase and rental spending on DVDs and Blu-ray Discs slipped 15% to an estimated $1.6 billion, while digital sellthrough and VOD revenues fell less than 3% to $3.16 billion.

The physical media side of the business received a jolt in the fall when Walmart, still the No. 1 retailer of DVDs and Blu-ray Discs, seemingly implemented a 20% reduction in floor space in its electronics department for discs.

And yet home entertainment executives are adamant that the traditional, transactional home entertainment model, including discs, still has plenty of life left in it.

Bob Buchi

“Thanks to consumer demand, creative efforts from the studios, and the ongoing support from digital and physical retailers, the transactional business continues to be remarkably resilient despite the challenges of the last few years,” says Bob Buchi, president of worldwide home media for Paramount Pictures. “In 2022, the industry and consumers benefited from the very welcome return of theatrical new releases, sales of which were up 69% across the industry through October, while also providing the longer-term benefit of refreshing the catalog business for years to come.”

Buchi says Paramount Home Entertainment in 2022 “enjoyed a 200%+ spike in the theatrical new release business thanks particularly to Top Gun: Maverick and its record-setting digital sales at over 4.5 million transactions inception-to-date in the domestic market alone and equally impressive results from around the world.

“Meanwhile, consumers continue to show up for both digital and physical releases of special catalog titles. Our 50th anniversary celebration of The Godfather this year generated over $25 million in consumer spend. We’ve also seen a strong consumer response to 4K debuts of titles like Planes, Trains, and Automobiles and Pulp Fiction. In television, the ‘Yellowstone’ franchise continues to dominate, generating more than $125 million in consumer spend this year, which has helped spur the expansion of the Taylor Sheridan universe to ‘1883,’ ‘1923’ and ‘Tulsa King.’”

Buchi maintains that traditional home entertainment “remains very important to collectors and cinephiles who appreciate the best-possible quality audio and video presentation and the compelling bonus features, while general audiences appreciate the broad selection and the flexibility to access their favorite films whenever they want.”

Michael Bonner

Universal Pictures Home Entertainment president Michael Bonner also had a very good year. “From premium windows through to catalog, Universal’s transactional business remains very strong, with robust consumer demand for content across windows and formats,” he says. “Our premium window continues to generate meaningful engagement with audiences and material value to our home entertainment business with titles like Sing 2Jurassic World Dominion and Black Phone leading the way. Providing consumers with broader choice and flexibility in how and where they see our movies is working to further fuel adoption and engagement.”

Jason Spivak, EVP of distribution for North America Television & Home Entertainment at Sony Pictures Entertainment, says the transactional business “continues to thrive, particularly from a digital point of view. Even with the rapid increase of SVOD options and other new-release patterns over the past few years, transactional digital continues to be a core business, satisfying the ongoing consumer need to curate a purchased virtual collection of latest hits and library favorites. Over the past year we were extremely pleased with the digital performance of many of our films, including Ghostbusters: AfterlifeSpider-Man: No Way Home and Uncharted.”

Jason Spivak

Adam Frank, SVP of global digital sales and distribution at Lionsgate, said digital movies sales were one of the company’s bright spots in 2022.

“We have seen new releases continue to perform extremely well via electronic sellthrough, in some cases ahead of pre-COVID levels across the entire box office spectrum,” he says. “Consumers are eager for new content no matter how they access it — transactionally or via SVOD or AVOD — with theatrical-first product proving to be the most valuable from a downstream monetization standpoint.”

For independents, the rise of AVOD presents another potentially lucrative sales opportunity, coming at a time when sales to SVOD providers is increasingly hit-or-miss as the subscription streamers vacillate between producing their own content or buying it from third parties.

“AVOD has become a fantastic category for us — both our own FAST channels, and distribution on a myriad of platforms,” says Garson Foos, CEO of independent film distributor Shout! Factory. “We see that continuing to grow. It’s the emergence of the long-tail into visual content — as we’ve seen with streaming services for music.”

As for the traditional transactional end of the business, that’s still the indies’ core.

“2022 was another strong year for transactional, with a strong new-release slate — Belle, Operation Sea Wolf and JFK: Destiny Betrayed — paired with strong catalog pickups (Laika Studios, Ferngully, the ‘Halo’ catalog),” Foos says.

Garson Foos

The gift market remains a bright spot for independents, almost exclusively on the physical side of the business.

“Our impression is that it’s largely physical,” Foos says. “We don’t have a lot of evidence that the gift purchase has transitioned to digital. We still see good sales from holiday gift-card giving in late December and early January. And our complete-series TV sets, deluxe film sets like ‘Friday the 13th,’ ‘Halloween’ and our deluxe Steelbook packages always see big spikes around the holidays. Nothing says Happy Hanukah like our new Carrie 4K UHD Steelbook release.”

“People like tangible gifts, and discs are still a great tangible gift,” adds Ed Seaman, chief operating officer of the MVD Entertainment Group, another leading indie.

“Similar to the vinyl collector’s marketplace, deluxe Blu-rays and UHDs are coveted, and not just for the superior quality,” he continues. “Nobody predicted that vinyl would continue to grow since its resurgence 15 years ago, yet each year it is reaching new heights.  The video market shall likely follow for the collector’s market. Digital gift giving seems less and less relevant with the market trending more and more to AVOD.”

Overall, though, “for independent product and catalog, transactional can be challenging,” Seaman maintains.

“Getting placement on the biggest and best platforms can be a struggle, but when something does get placed the results are still very good,” he says. “Inclusive digital platforms for film remains the biggest challenge — and opportunity — in our industry.  There is no consistent place to find virtually any film you’d like to see. Everyone is fatigued by the need to subscribe to multiple services to see what you want to see. Compared to the music industry, there is no Spotify in the video business where you can reliably find virtually anything you’d like to watch.

“There is an opportunity to build or aggregate the various sources of entertainment into one easy-to-use, all-you-can-eat service.  The fragmentation and frustration in finding what you want is also an opportunity for disc sales, which is now the most reliable way to find what you want.”

2022: How Lessons From the Pandemic Will Guide Home Entertainment Strategies

The uncertainty over the COVID-19 surge triggered by the emergence of the Omicron variant has made any and all predictions for the coming year suspect. Life could go back to normal fairly quickly or we will continue to battle surges and adjust our lives accordingly. Most observers don’t see us going back to the draconian shutdowns and lockdowns of the early days of the virus, but studio executives and exhibitors are understandably nervous about the current and any future surges since theatrical attendance could suffer — which ultimately affects everyone down the food chain.

The home entertainment industry weathered the initial COVID crisis quite well, with streaming growing stronger and transactional video-on-demand (TVOD) winning a premium first-run window. That said, there are several “givens” as 2022 gets underway.

Netflix, Disney+, HBO Max and the other high-profile streamers will continue to battle for dominance, with Netflix doing everything in its power to reduce churn and not lose market share. The second tier of SVOD players, including Paramount+ and Peacock, will make as much noise as possible to win a seat at the table — as evidenced by Peacock’s recent announcement that it will be streaming the winter Olympics in their entirety.

On the transactional side, a lot depends on the fate of movie theaters as this pandemic lumbers on. The early pandemic led to an overall shortening of windows and new-release strategies that ultimately benefited both home entertainment divisions and digital retailers such as Vudu by Fandango, Redbox On Demand, Microsoft and Google Play.

But while TVOD, and physical media, benefit from shorter windows, it is also impacted by studios accelerating, or re-ordering, SVOD windows. A film available as part of an all-you-can-watch subscription streaming service simply isn’t going to sell or rent nearly as well as it would if there was no “free” competition. And that plays into the bigger picture that the more consumers tune in to SVOD services, the less likely they are to purchase or rent something a la carte.

Jim Wuthrich

Jim Wuthrich, president of content distribution for WarnerMedia, says he’s “optimistic that we’ll continue to adapt to the changing nature of COVID and learn to live with it.”

“Although there are many challenges, we’ve learned how to be productive with a distributed workforce, productions are largely back and there’s more consumer choice than ever before — both in amount of content and ways to view,” he says. “It’s a great time to be a fan of linear storytelling. We will continue to improve and expand HBO Max to more markets, while providing a la carte options for fans and collectors. SVOD services will continue to dominate viewing time, with transactional supporting a vital role in discovery, sampling and fandom. Physical media (4K/Blu-ray/DVD) continues to be a meaningful market, with approximately $2 billion in U.S. consumer sales, and largely immune to evolving distribution patterns.”

On the WarnerMedia side, Wuthrich says, “We have a great movie slate, with four DC films coming to theaters and another installment of ‘Fantastic Beasts.’ We also have a number of series releasing, including the new ‘House of the Dragon,’ a ‘Game of Thrones’ prequel. History has shown these franchises to be powerhouses in driving catalog sales so we are looking forward to a great year.”

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“Similarly to 2021, we expect a very healthy home entertainment market in 2022, with strong consumer engagement across multiple business models,” says Michael Bonner, president of Universal Pictures Home Entertainment. “Release patterns will likely continue to fluctuate and vary across studios on a title-by-title basis.

Michael Bonner

“With the theatrical marketplace continuing to strengthen, the growth of PVOD and the expansion of various SVOD services, the distribution landscape is stronger than ever. As we look ahead, studios have more options and outlets to create value and reach consumers which strengthens our ability to continue investing in great content.”

Bonner maintains that Universal, with its slate of anticipated new releases including Jurassic World: Dominion, Minions: The Rise of Gru and Downton Abbey: A New Era, “is perfectly positioned to draw audiences back into theaters and fuel further transactional growth across the varying windows and platforms.”

Paramount Home Entertainment president Bob Buchi says that “as the global hub for transactional home entertainment across ViacomCBS, our division is exceedingly fortunate and singularly focused on delivering an extraordinary 2022 line-up of the company’s theatrical and television content, as well as third-party acquisitions through our extensive partnerships.”

“Our theatrical slate includes new entries in wildly popular franchises, including ‘Scream,’ ‘Top Gun,’ ‘Mission: Impossible,’ ‘Sonic the Hedgehog’ and ‘Jackass,’ which are not only highly anticipated, but also provide excellent opportunities to stoke fan interest in the earlier films and television shows available through home entertainment,” he says.

Bob Buchi

On the catalog front, Buchi adds, the division’s most ambitious initiatives are the year-long 50th anniversary salute to The Godfather, “for which we anticipate massive consumer excitement for the film’s return to theaters, new 4K home entertainment releases, and licensed merchandise,” and the first-time-on-4K director’s edition of Star Trek: The Motion Picture, “with fantastic new VFX, which will be released first on Paramount+ and then on home entertainment platforms.”

Cameron Douglas, VP of home entertainment for Fandango, which oversees the Vudu digital retailer, also has high hopes for the new year.

“We expect the TVOD sector to deliver even more value to consumers, as fans sort through a fragmented streaming world, looking for a one-stop-shop entertainment service for movies and TV,” he says. “Because subscription services, by their nature, cater to specific audiences and content offerings, we continue to see consumers utilizing the flexibility, depth and breadth of Vudu’s new-release and catalog offering of over 200,000 titles to complement their monthly entertainment needs.”

Cameron Douglas

At the top of Vudu’s agenda for the coming year, Douglas says, are plans “to innovate new services for our customers and add new platforms and devices to meet the fan demand in an ever-changing marketplace. We also plan to offer deeper integration with our sister sites, Rotten Tomatoes for entertainment discovery, recommendation and curated content, and Fandango for crossover promotional opportunities to help enhance the theatrical experience.”

The big challenge they face in the coming year, home entertainment executives say, is to apply lessons they learned during the pandemic and react quickly to market conditions.

Paramount’s Bob Buchi says that “with two years of experimentation and the expedited evolution of our business, we know we need to remain agile in our windowing and co-promotional strategies as we continue to support the return to theaters and the rapid growth of our streaming service, Paramount+.”

Adam Frank, SVP of global digital sales and distribution at Lionsgate, says what happens at the box office will trickle down into all aspects of home entertainment.

“Our expectation, given the quality and quantity of the theatrical release slate, is that box office sees significant increase and momentum in 2022 vs. 2021,” Frank said. “The old adage of content is king still rings true, and with more product in the marketplace, consumers will ultimately have more choices and more opportunities in the home entertainment space.”

Jed Grossman

Jed Grossman, EVP and GM of worldwide sales and distribution at Lionsgate, adds, “We expect all business segments — transactional digital, packaged media, SVOD and AVOD/FAST — to grow year-over-year driven by five key factors.”

According to Grossman, those factors are:

    • A more robust theatrical release schedule, inclusive of major tentpoles and franchises like ‘Jurassic World,’ ‘Top Gun’ and ‘Black Panther’ that were delayed during the pandemic. Lionsgate has a strong slate that includes Unbearable Weight of Massive Talent, starring Nicolas Cage; Are You There God? It’s Me Margaret; and White Bird, among others;
    • A more viable theatrical marketplace, with theatergoing comfort increasing as vaccine/booster shot rates increase and tentpoles drive attendance;
      The continued unprecedented demand for new-release and library product from SVOD and AVOD/FAST platforms. Lionsgate has achieved record library revenue over the past year;
    • The ability to capitalize on home entertainment consumer behavior, consumer content thirst and technology enhancements — across all offer types — as accelerated by the pandemic lockdowns of 2020 and early 2021; and
    • Continued collaboration with between Lionsgate and its theatrical exhibition partners to release films with dynamic windows to meet demand across all platforms.

 

For independent film distributors, don’t expect much variance in 2022 from established policies of continuing to take aim at the collector and niche markets, particularly on the physical media side.

“For disc sales, MVD and our label partners are focusing on collectible content in deluxe packaging,” says Ed Seaman, COO of MVD Entertainment Group. “We anticipate a similar trajectory for disc sales, which have steadily grown over the last several years. The pandemic certainly gave them a boost, but the resilience and resurgence of disc sales may have more to do with the frustrating customer experience our industry has created in the OTT space. Finding what you want is now very challenging. How many streaming services do you need to subscribe to only to not find the film you want to watch, when you want to watch it? You can more easily find what you want transactionally, but it is still a search. Why not just pay a bit more and own the deluxe-edition disc?”

On the digital front, Seaman says “AVOD/FAST will continue to grow dramatically as consumers clearly embrace and enjoy that model. TVOD is tricky; considering Amazon’s tight curation of nonfiction, we expect some other platforms to step up and become more dominant in that space. There is a real opportunity for platforms focusing on nonfiction to deliver to fans what they want when they want it.”

Mark Fisher, president and CEO of OTT.X, a streaming industry trade group, believes 2022 “will be a year that portends the future of our industries — a future that, enabled by OTT distribution, is more egalitarian, more global and more diverse,” Fisher says. “While Hollywood continues to make great movies and TV shows, smaller distributors and independent producers from all over the world are making a lot of great content, too — enabling the consumer to be less reliant and dependent on content from the big studios and on domestic-produced content. And, while the big ‘Pluses’ and ‘Maxes’ continue to grow, consumers are finding plenty of additional content on indie and niche channels, both FAST and on demand.”

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The shadow of COVID-19 continued to hang over 2021, despite rosy predictions the previous summer that the worst would soon be over.

By mid-year, with a vaccine rollout in full swing, most restrictions were lifted and theaters were welcoming back moviegoers, particularly after studios once again stepped up movie production. This theatrical recovery continued, unchecked, through the emergence of the summer Delta variant and the beginning of the winter Omicron surge. Indeed, the December 2021 theatrical opening of Spider-Man: No Way Home generated $260 million in domestic ticket sales, the second-highest North American box office opening weekend of all time. Domestic box office revenue for 2021 is estimated at $4.5 billion, more than twice what it generated in 2020 but still down 61% from 2019, the last year before the virus hit.

The entertainment world in 2021 was rocked by two major announcements: Amazon bought a movie studio, MGM, for $8.45 billion, and AT&T announced plans to spin-off WarnerMedia through a merger with Discovery, resulting in a new media powerhouse, Warner Bros. Discovery, under Discovery Inc.’s CEO David Zaslav. The deal is expected to be completed in mid-2022, pending Discovery shareholder and federal regulatory approval.

The year also saw the vindication of WarnerMedia’s controversial plan, announced at the end of the prior year, to release its entire theatrical slate simultaneously on its HBO Max streaming service. Initially railed against as a death blow to the movie business, the strategy in retrospect kept the business alive, providing a steady stream of high-profile new product to movie theaters hungry for fresh films, even if they no longer would be exclusive to the big screen.

“2021 marked the first anniversary of HBO Max and, with it, a whole new distribution pattern for movies,” said WarnerMedia’s Jim Wuthrich.

On the home entertainment front, 2021 was the proverbial mixed bag for the industry’s two segments, subscription streaming and transactional/physical.

As the winter surge of the virus delayed the reopening of movie theaters well into the spring, studios held back their big releases until their opening strategy — theaters, PVOD or both — could be determined. Streaming, however, continued to flourish at the accelerated pace that had begun in 2020 with the onset of the pandemic. Consumer spending on subscription video-on-demand services soared more than 20% in the first half of 2021, according to DEG: The Digital Entertainment Group estimates.

Amy Jo Smith

“The growth in subscription streaming in 2021 can be attributed to consumers who continued to spend time at home, increasing their engagement with content offered through an abundance of new direct-to-consumer subscription services, including Disney+, HBO Max, Paramount+, Peacock, AMC+ and many others,” said Amy Jo Smith, DEG president and CEO. “These services provide consumers premium content with convenience and value.”

Disc and digital sales of movies in the first half of 2021, meanwhile, were off by more than 25% from the prior year, while combined disc and digital rental (TVOD) revenue suffered a first-half decline of more than 30%, according to the DEG.

As the year progressed, subscription streaming continued to dominate home entertainment, while the transactional side of the business began to recover in the wake of theatrical reopenings that remained on track despite the summer emergence of the more-contagious Delta variant. By the third quarter, disc and digital sales had trimmed their quarterly decline to 12% while rentals were off just 14%.

“2021 certainly had its challenges, but there were some high notes as well,” noted Jason Spivak, EVP of distribution for North American Television & Home Entertainment at Sony Pictures Entertainment. “Early in the year, we were blown away by the tremendous success of Monster Hunter on both physical and digital formats. We achieved strong PVOD results on The Father and Don’t Breathe 2. And throughout the year we saw consistent strength in our digital catalog, particularly our drafting efforts around the ‘Spider-Man’ franchise.

Jason Spivak

“The biggest highlight for our business, however, has been the fourth-quarter theatrical performances of Venom: Let There Be Carnage, Ghostbusters: Afterlife and, of course, the worldwide phenomenon that is Spider-Man: No Way Home. These films demonstrate that consumers are excited to return to theaters and that they crave the communal experience that can only be achieved in a movie theater.”

WarnerMedia’s Wuthrich said his company’s strategy of releasing its news films to theaters and streaming on the same day “did add an element of unpredictability to [traditional, transactional] home entertainment in forecasting demand, as it was unique to have streaming as the first window.” Ultimately, he said, “we found that there is robust demand for transactional (EST/TVOD/physical), despite the change in windowing.”

Paramount’s Bob Buchi said that while 2021 “certainly did not go as planned, consumers again turned to home entertainment options in record numbers. Throughout the year’s unprecedented circumstances, Paramount continued to experiment with new-release windowing, maximized the power of our exceptional library, and supported the ongoing growth of Paramount+.”

With very different release strategies, Buchi added, A Quiet Place Part II, Snake Eyes and Paw Patrol: The Movie “delivered tremendous results across each studio window thanks to the cumulative marketing muscle and cross-company promotional efforts, which bodes well for the ongoing coexistence of every platform.”

Paramount also saw consumer spending on catalog titles remain strong, “representing nearly 60% of annual revenue and holding steady to slightly up compared to the extraordinary sales in 2020 across physical and digital worldwide,” Buchi said. “Digital sales, in particular, have been exceptionally strong during the pandemic, with a compounded annual growth rate of over 25% compared to pre-pandemic 2019 levels globally.”

Universal’s Michael Bonner said his studio’s “new-release home entertainment business remained very strong in 2021 as we saw with F9, The Croods: A New Age, Let Him Go, Promising Young Woman and several others, with a significant contribution coming from our new PVOD window and followed by our traditional home entertainment offering,” Bonner said. “On top of that, similar to 2020, we saw our library business reaching historical levels.”

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On the physical side of the business, Sony Pictures Home Entertainment and Lionsgate in February 2021 announced a multiyear agreement in which Sony, beginning in July, handles distribution of Lionsgate’s DVD/Blu-ray Disc releases in the United States and Canada. Lionsgate’s North American packaged-media distribution had been handled by the former 20th Century Fox Home Entertainment, which was acquired in 2019 by Disney.

Lionsgate continues to maintain its own independent sales and marketing teams, but is leveraging SPHE’s supply chain and distribution services.

Two months after the Sony-Lionsgate deal was announced came the official launch of Studio Distribution Services (SDS), a joint venture between Warner Bros. Home Entertainment and Universal Pictures Home Entertainment to distribute packaged media in the United States and Canada.

“Starting any business in a pandemic is challenging, but one that relies on delivering physical goods to stores across two countries during a supply chain upheaval is not for the faint of heart,” WarnerMedia’s Wuthrich said. “The SDS team, along with the studios, did a great job managing through a challenging time,” he added, referring to the supply chain crisis that led to distribution challenges toward the end of the year.

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As of the end of the third quarter, streaming accounted for nearly 80% of total consumer spending this year on home entertainment, or $18.6 billion. Total consumer spending on disc and digital sales and rentals in the first nine months of the year was just $5 billion.

And yet subscription streaming did face several challenges, including consumer fatigue — stemming largely from the rising costs of subscribing to multiple services — and rapid gains in free ad-supported platforms such as Pluto and Tubi. In professional consultancy Deloitte’s 2021 Digital Media Survey, more than half of the respondents said they are re-evaluating multiple streaming subscriptions, and 40% said they planned on terminating at least one subscription. Adriana Waterston, SVP of insights and strategy at Horowitz, told Media Play News in November that streaming consumers are feeling overwhelmed by the proliferation of services, with many struggling to figure out what to watch, and where.

The OTT.X’s Mark Fisher said free ad-supported streaming is just one more option that is leading to continued growth for the overall home entertainment business.

“Internet-based delivery today gives the consumer so many more opportunities and more choices to enjoy great content — both on demand and linear,” he said. “Some prefer long-form, some short-form; some prefer to watch without ads, while others watch ads to avoid paying; some like to watch what they want, when they want, while others like the sit-back FAST experience; some want to build their cloud-based collections and others just want to watch once; some like to watch big-budget spectacles and others enjoy good indie-produced stories; and many are adding the diversity of international content and niche content and channels. Opportunity and choice benefit everybody.”

In some cases, the two sectors of the business, streaming and transactional, are converging.

One of best examples of this is that while Redbox’s legacy disc-rental kiosks remain the company’s cash cow, a massive digital transformation — fueled by the company going public in October 2021 — is expanding the Redbox brand into digital, with a particular emphasis on streaming. Redbox Free Live TV, an ad-supported streaming service that launched in February 2020, has grown to more than 100 channels offering viewers free access to movies and television shows, news, and lifestyle and sports entertainment programming. In December 2021, Redbox began advertising its digital products on its kiosks.

Galen Smith

CEO Galen Smith said that on the kiosk and TVOD side, Redbox in 2021 “continued to see a significant impact on the quantity of new-release movies due to production being paused as a result of COVID, with fewer movies in 2021 than 2020. The good news is we anticipate the number of new theatrical movies releasing in 2022 should be back to levels not seen since 2019.”

As for streaming, he said, “2021 was a growth year for us — as we rapidly scaled both our AVOD service and FAST channels.”

Redbox going public, Smith noted, “provided us with additional capital to invest in the ongoing digital transformation of Redbox, as we built on our transactional video-on-demand service with growth in AVOD (more than 5,000 titles on demand) and FAST (more than 125 linear channels including five that are Redbox branded) and a subscription channels business coming in 2022.”

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Independent film distributors, meanwhile, in 2021 found the plethora of streaming services a whole new market for their films, augmenting their traditional TVOD and physical release.

“It’s always a good thing when new channels appear where we can license our films,” said Joe Amodei, president and CEO of Virgil Films & Entertainment. “The major accounts still rule in this area, but as they have dwindled down their buying in favor of original films and series, we’ve enjoyed doing business with this new group of folks.”

Indies also say they are finding their disc businesses remarkably resilient. MVD’s Ed Seaman said 4K Ultra HD Blu-ray “continues to surprise us. Sales are really strong, possibly because there aren’t a ton of products in this space, but mainly because our trade partners/content providers are choosing excellent content and do a great job lovingly restoring and filling these editions with great bells and whistles.”

John Rotella

John Rotella, SVP for Shout! Factory, said the company saw “unbelievable growth in catalog and new-release sales” during the pandemic year of 2020, “and that swell carried forward into 2021.”

Shout! Factory, he said, “saw one of our best years ever on gross shipments and an equally impressive net business. We also saw growth in [point-of-sale] revenue in 2021. The DVD and Steelbook/4K business grew again as Blu-ray sales stayed even compared to 2020. New-release and catalog as a whole all improved from a surprising and productive year, led by our new Western, Old Henry, and 4K ‘Halloween’ releases.”

Some of this success, Rotella said, “can also be attributed to a less-competitive new-release marketplace, upgraded and repackaged catalog, developing more-valuable collectible products at a higher price, and managing the right genre that works for mass [merchants]. Walmart and Amazon continue to offer new-release and catalog opportunities, and we saw an e-commerce surge in business. Looking back, 2021 unexpectedly managed to match 2020 in [point-of-sale] and shipments, and remained far superior to 2019 in every area.”

On the downside, the supply chain crisis has compounded ongoing problems with limited replication opportunities, resulting in delays in bringing product to market.

“We were hugely affected by inbound transportation challenges, mostly from the U.K. and Europe, where many of our top clients reside,” MVD’s Seaman said, noting that the situation improved toward the end of the year.

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Another home entertainment trend that continued in 2021 was the consolidation of theatrical and home entertainment teams. Warner Bros., Sony Pictures and Lionsgate went through their respective integrations in 2020; Paramount Pictures followed in March 2021 with a restructuring that led to the exit of 23 home entertainment marketing and distribution personnel, including marketing chief Vincent Marcais, publicity head Brenda Ciccone, and Dina Marovich, SVP of worldwide media and interactive marketing.

A new way of doing things sometimes finds home entertainment executives branching out beyond their wheelhouses.

“Somewhat out of the traditional course of business, our team successfully managed the launch of Virtual Reality experiences at the new Harry Potter store in New York City,” Warner’s Wuthrich said. “These two experiences allow Potter fans the ultimate experience of visiting Hogwarts or flying high above London on broomsticks while battling Death Eaters. The experiences have sold out since launching this summer and have been garnering rave reviews. We look forward to expanding the number of locations in 2022 so more Potter fans will have a chance to live the experience.”

2021: What Now? Industry Leaders Offer Their Predictions for the Coming Year in Home Entertainment

After a year in which COVID-19 upended Hollywood, 2021 looms as one big question mark for home entertainment executives.

The pandemic accelerated the growth of streaming and made premium video-on-demand (PVOD) an economic and logistic necessity due to the closure of movie theaters. And despite the lack of fresh theatrical product, the transactional end of the home entertainment business flourished.

In 2020, films that would have been major theatrical releases — including Disney’s live-action Mulan, Universal/DreamWorks Animation’s Trolls World Tour and Warner Bros. Scoob! — hit PVOD first before moving on to other windows. Studios made the most of captive home audiences by seamlessly transitioning from PVOD to TVOD, and at the same time dug into their vaults and came up with creative ways to market catalog titles.

“COVID didn’t introduce new trends to entertainment, but it did accelerate what was already happening,” observes Jim Wuthrich, president of Warner Bros. Home Entertainment.

With a vaccine rollout underway, the big question is whether things will return to normal — or whether the changes have been so pronounced, so significant, that Hollywood will never return to its old ways. Whichever way the wind blows, industry executives say, the strides made by PVOD are unlikely to be reversed even once most of the country has been vaccinated and it is safe for theaters everywhere to reopen.

“COVID was clearly an accelerant to move more entertainment consumption to the home,” says Galen Smith, CEO of Redbox. “Event films will still be big theatrically, but there will be a push to accelerate consumers’ abilities to watch at home through PVOD and shorter overall windows — both digitally and on disc.”

Galen Smith

He adds, “We don’t believe the theatrical model will return exactly as it existed prior to COVID. The evolution over the last year benefited consumers and content creators through the introduction of new products — and a number of them, like PVOD, are here to stay. PVOD has been a model the studios have wanted to add for many years, and I expect to see more PVOD releases in 2021. It’s another way to provide customers choice, which is good for them as well as for the industry.”

Dametra Johnson-Marletti, corporate VP of Microsoft Digital Stores Category Management, agrees. “I think many consumers will be excited to return to the theaters when the COVID risk is nearer to zero,” she says. “That said, I also think that PVOD is here to stay, particularly for titles that are not forecasted to be box office blockbusters, and for a certain segment of viewers.”

The mantra for home entertainment executives, then, is to keep their fingers on the pulse of the industry, and on the consumer, and be prepared for more changes as well as more uncertainty.

Bob Buchi

“What we saw in 2020 was an anomaly, but it also demonstrated our ability to pivot and continue to monetize our content through the distribution strategies and platforms that are available to us and that make the most sense,” says Bob Buchi, president of worldwide home entertainment for Paramount Pictures. “All of these options — including traditional theatrical distribution — will continue to co-exist in a post-pandemic world.”

“I feel strongly that we need to stop framing things as ‘normal,’ whether that’s ‘back to normal’ or ‘a new normal,’” adds Amy Jo Smith, president and CEO of DEG: The Digital Entertainment Group. “Our business is currently in an accelerated state of evolution, as the pandemic created the perfect environment for overdue experimentation with distribution models. Many studios are working within this unique opportunity to offer consumers new ways to consume content at earlier points in its lifecycle, and consumers have embraced the change. There is no replacement for the experience of seeing a movie in a state-of-the-art theater, but we expect content owners will continue to meet entertainment lovers wherever it is that they choose to consume new content.”

Similarly, streaming is likely to enjoy continued high growth rates. “Recent research from the NPD Group shows that the average U.S. consumer now relies on seven different streaming video services, up from five in April,” says the DEG’s Smith. “This is another case of the pandemic accelerating a trend that was already underway. It’s great that consumers have so many streaming options at different price points and offering different content. It’s the belief of DEG’s D2C Alliance Steering Committee that as consumers continue to customize their entertainment experience, subscription and ad-supported services will continue robust growth, as will large, mainstream services and those that offer more-specialized content.”

The transactional end of the business is perhaps the most fluid as 2020 gives way to 2021. Against all odds, the business didn’t collapse when the theatrical business did. But that doesn’t mean there weren’t some dicey moments — nor will it be all smooth sailing ahead.

Dametra Johnson-Marletti

“The Microsoft Movies & TV transactional service thrives mostly on new blockbuster content,” Johnson-Marletti says. “With new production shuttered for much of the year, and top content releases pushed to 2021, our TVOD business certainly felt some headwinds. Our team had to become very creative and scrappy as they worked with our studio partners to find unique avenues for growth. We had a multi-part strategy that included shifting more focus to our catalog by bringing forward a lot of the fan-favorites and classics for consumers to find more easily. We also focused on building great thematic and seasonal collections.

“Given the current state of the pandemic-related shutdown, and the related outlook through the first two quarters of calendar year 2021, I think we will likely expect much of the same, with some positive light starting to emerge in the late April to early May timeframe. The pervasiveness of vaccine adoption, the openness of the world (as it pertains to theaters), and new windows and rollouts will all be key inputs to how the back half of 2021 plays out.

“I definitely think the approach [we took in 2020] represents a viable set of tactics that will continue to serve our customers, partners and business well in the new year.”

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With the continued erosion of disc sales in 2020 — combined consumer spending on Blu-ray Discs and DVDs was down about 26% from 2019, to a new low of $2.5 billion, according to Media Play News Research estimates — digital retailers will likely continue to stress the collectibility of digital movie sales, as they did with catalog product during 2020.

“It may not be widely known or understood, but in many ways digital movie collections offer a level of security, portability and confidence that discs cannot,” Johnson-Marletti says. “Your entire library can be accessed from almost any device, it travels with you seamlessly, and you never have to worry about damaged or lost discs. To the purest of collectors, the absence of tangible boxes may not fully satisfy, but, again, there are many benefits that outweigh the cardboard. Lowering the cost of entry and creating compelling promotions and offers that inspire first-time adoption could be a way to spur greater digital movie sales.”

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Despite the emergence of PVOD and continued growth in streaming, some observers expect theaters to stage a dramatic comeback once most of the country has been vaccinated.

“As [Paramount studio chief] Jim Gianopulos pointed out in November, when theaters re-opened in Japan and China, audiences returned en masse, driving huge box office returns for films that were available,” Paramount’s Buchi says. “Clearly, windows and consumer behaviors are shifting, but the theatrical experience will endure.”

Even so, Buchi says, “each film and situation is unique. For some films, like Top Gun: Maverick and A Quiet Place Part II, the theatrical model is optimal. On the other hand, we found tremendous success with PVOD for Love and Monsters and Spell. Some films make sense for subscription streaming services. It is not one-size-fits-all and every film needs to be evaluated individually.”

Ultimately, he adds, “we will continue to explore new distribution models and opportunities to bring our content to audiences wherever and however they want to enjoy it.”

Warner’s Wuthrich agrees. “Consumer empowerment is good for the industry and our goal is to meet the fans where they are — theaters, OTT, digital, physical,” he says. “While fans may have a preferred channel, they often participate in many, such as going to the theater, subscribing to HBO Max and picking up the Blu-ray. The multichannel experience could be one movie or across different movies, depending on interest.

“One thing is certain: If we are successful in creating compelling stories, fans will continue to show up.”

Fans certainly did continue to show up throughout 2020.

Amy Jo Smith

“The overriding trend we saw in 2020 was consumers’ hunger for, love of, and engagement with entertainment content,” said the DEG’s Smith.

“When new releases slowed as a result of production halts and theater closures during the COVID-19 pandemic, consumers hardly missed a beat.

“They just expanded their viewing to include many catalog movies and TV shows, as well as discovering films that were independent productions or may have had limited prior release.”

The pandemic in 2020 accelerated two trends, declining movie theater attendance and a surge in streaming, that were already apparent long before the first reports of a strange new flu originating in Wuhan, China, began circulating in January, as thousands of industry executives descended on Las Vegas for the CES.

Two months before the World Health Organization’s declaration of a global pandemic led to the closure of movie theaters around the world, the National Association of Theatre Owners (NATO) in January 2020 reported that the number of U.S. movie admissions in 2019 declined nearly 5% to 1.24 billion, from a 2002 peak of 1.57 billion.

Studios had been pushing for shorter theatrical windows for years, maintaining that most movies had pretty much run their big-screen course after 30 days, much less than the 90 days that typically elapsed between a film’s theatrical launch and its availability for home viewing. Some top studio executives were even calling for simultaneous releases, with films becoming available for home viewing — albeit at a premium price — the same day as their theatrical bow. The stumbling block: resistance from exhibitors, who balked at any attempts, or even just talk, of cutting into their exclusive window.

But when theaters went dark in mid-March, exhibitor leverage disappeared, overnight. PVOD was no longer a strategic objective, but, rather, a necessity, as studios had no other way to recoup production expenses.

Universal Pictures struck first, immediately making its entire theatrical slate available for home viewing on March 16. Three weeks later, Trolls World Tour was the first big film to premiere simultaneously on PVOD and in the handful of theaters, mostly drive-ins, that remained open.

Trolls World Tour

The results were strong enough that more tentpole releases followed, including Scoob! from Warner Bros., the comedy sequel Bill & Ted: Face the Music and Disney’s live-action remake of Mulan — which debuted on Disney+ as a “Premier Access” title for an additional charge.

At first, exhibitors balked. AMC Theatres, the country’s largest chain of movie theaters, initially vowed to boycott all future Universal Pictures releases. But in a June report, Wall Street analyst Robert Fishman of MoffetNathanson wrote that while exhibitors have until now been able to stand their ground, “this time is different in that all of the major studios … are likely to be more aggressive with windowing strategies. As long as multiple studios push forward with PVOD or some other form of window changes, the balance of power in favor of studios shifts even more in their favor and reduces the leverage the exhibitors have as they would be unlikely to boycott multiple studios’ upcoming releases.”

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A month later, AMC and Universal announced a landmark distribution deal for the studio’s new-release movies, beginning in November. The agreement allowed Universal to distribute titles on PVOD three weekends (as little as 17 days) after their initial bow in AMC Theatres, in return for a revenue split. Four months later, AMC CEO Adam Aron called the arrangement a success, telling analysts on an earnings call, “On the only one of [six planned] PVOD movies that has been released as of yet, our analysis is that AMC [not only] came out ahead financially as we had modeled, but much better than some [analysts] had postulated or feared.”

In December, the “balance of power” Fishman referred to in his report shifted further with the bombshell announcement by Warner Bros. that it would simultaneously release all its movies through 2021 in theaters and on Warner’s new streaming platform, HBO Max, beginning with Wonder Woman 1984 on Christmas. The 17-film slate includes the new Dune adaptation, The Matrix 4 and The Suicide Squad.

Wonder Woman 1984

The coronavirus pandemic also accelerated the push toward streaming, although subscription video-on-demand, or SVOD, had long been on a roll, with DEG: The Digital Entertainment Group reporting annual gains in consumer spending on steaming services of 22% to 45% for the past 10 years.

Part of this was due to the launch of several new high-profile services competing with established leaders Netflix, Amazon Prime Video and Hulu. Two launched in November 2019 — Disney+ and Apple TV+. This year saw the rollout of two more high-profile services, WarnerMedia’s HBO Max and NBCUniversal’s Peacock.

Fears that the proliferation of subscription streaming services would lead to cannibalization have been unfounded. Instead, with captive audiences choosing, or ordered, to stick close to home due to the raging pandemic, it’s truly been a case of the more the merrier.

Disney+ is far and away the biggest success story, with the Walt Disney Co. in December 2020 announcing that its branded subscription service had reached 86.8 million subscribers. Meanwhile, Netflix was no slouch, quieting critics with outsized subscriber growth projected at 34 million additions through the end of this year and double-digit revenue gains.

In November 2020, Hub Entertainment Research found the average person was accessing 60% more streaming video services in 2020 than they were in 2018, while 90% of households with children living at home subscribed to more than one OTT video service.

“We’ve seen the number of providers per [survey] respondent rise to an all-time high during the pandemic,” analyst Jon Giegengack said in a note at the time. “The average respondent had 4.8 services. That was going up anyway, but the pandemic turbocharged it.”

Aside from the crash of the theatrical business, the emergence of PVOD and the near-saturation of subscription streaming, 2020 will be remembered as a year when home entertainment marketers, with no fresh theatrical product, managed to survive and even thrive.

Jim Wuthrich

A month into the pandemic, in April, Warner’s Wuthrich said home entertainment transactional spending shot up 38% since mid-March.

“Our digital sellthrough business [has] been up over 100% each week since safer at home began,” he said, speaking at the virtual DEG Expo.

The trend slowed as the country began to open back up, but in August the DEG reported that consumer spending on digital entertainment purchases and VOD rentals in April, May and June shot up 54%. Even nine months into the year most studio home entertainment divisions reported year-over-year gains in revenue despite virtually no theatrical product.

“We kept our content pipeline flowing by leveraging our vast catalog and releasing many remastered 4K UHD titles, both physically and digitally, including Beetlejuice, The Goonies, Full Metal Jacket and 300,” Wuthrich said. “The ongoing demand for classic titles in 4K for at-home viewing will continue to make our catalog business a relevant and profitable area for us.”

The DEG reported electronic sellthrough spending in 2020 was up 16% over 2019 to an estimated $3 billion, while electronic rental was up nearly 18.3% to an estimated $1.8 billion. Only disc sales were down, with DEG estimating combined consumer spending on Blu-ray Discs and DVDs slipped nearly 25.6% in 2020 to about $2.5 billion — a not uncommon decline, given the normal transition to digital, but one that observers say might have been compounded by store closures due to regional bans on “non-essential” retail.

The DEG’s Smith notes that during the second quarter, “at the height of new stay-at-home orders across the United States, consumer spending rose 57% on electronic sellthrough. This tells us that consumers are interested in building their digital collections, and that collecting favorite films provides a great value, particularly for families. Electronic sellthrough is also a model undergoing some really interesting innovation and experimentation in terms of pricing and release windows.”

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Paramount’s Buchi listed some of the changes at his studio in 2020. “We successfully launched our first PVOD releases, shifted our emphasis to catalog titles, and maximized our distribution deals with companies like Saban, Miramax and Romulus, which has greatly helped us to meet consumers’ demand for new entertainment while they also discover old favorites,” he said. “And because of the year’s unique circumstances, we exceeded our revenue projections.”

The effects of the pandemic, he added, “have magnified the shifts across all industries — from telemedicine and online education to flexible work arrangements and the entertainment industry. The transition to digital ownership has been steadily growing amid the explosion of streaming platforms, all of which has opened up new ways for consumers to enjoy content — a trend that is certain to continue.

“What we saw [in 2020] was an anomaly, but it also demonstrated our ability to pivot and continue to monetize our content through the distribution strategies and platforms that are available to us and that make the most sense. All of these options — including traditional theatrical distribution — will continue to co-exist in a post-pandemic world.”