Industry Report: Market Trends
Video Distribution in Europe
by CARTOON (European Association of Animation Film)
- Helen Davis Jayalath presented Screen Digest's study on the evolution of video consumption, trying to understand whether Blu-ray could compensate the decline of DVD sales. The answer is negative but, according to Screen Digest, the European online movie spending will reach almost 400M€ in 2013 and two third of this will be from the big 5 territories in Europe (Germany, France, UK, Spain and Italy).
Helen Davis Jayalath heads up Screen Digest’s Video team and has overall responsibility for the company’s coverage of the packaged media business. She has been analysing the international video business since 1991 and is widely acknowledged as a leading authority in the field. Helen has led the expansion of Screen Digest’s coverage of the sector since 1994, including the development of the online Video Intelligence service that set new standards for market information about the video industry.
Can Blu-ray compensate for declining DVD sales?
The answer is no. Blu-ray did not compensate for the declining of DVD sales in 2008, nor will it in 2009. Physical spending both in Blu-ray and DVD declined by 5.4% in 2008 and by 4.5% in 2009. The spending for digital delivery over the Internet accounted for less than 1% of the amount spent on physical spending of video in 2009.
What is happening with Blu-ray?
So far Blu-ray sales have been limited by a small installed base. The high price and the recession limited the penetration of Blu-ray. However, the format is expected to account for 4% of European unit sales in 2009.
How does Blu-ray spending compare to DVD?
Blu-ray standalone sales are slightly lagging behind DVD. DVD had a united launch in 1998, but the software took much longer to appear. In 2009 Blu-ray players could narrow the gap with DVD players. Despite the extra hardware, software sales are about 60% of equivalent DVD sales. Backwards compatibility means that even Blu-ray homes continue to buy DVDs. However, Blu-ray software is increasing and already accounts for more than 15% of sales on some UK titles.
How do PS3 consumers react to Blu-ray?
PS3 homes do not buy as many discs as those with dedicated Blu-ray players. Blu-ray standalone player Households will buy almost 6 discs each this year. The PS3 households will still buy less than one Blu-ray on average. Promotion from video sellers or distributors can help turn gamers into Blu-ray buyers. PS3 gamers who subsequently invest in HDTV will find they already have a Blu-ray player, creating ‘invisible’ new Blu-ray homes.
Is physical rental declining as well?
Yes, physical rental is declining across Europe. The DVD rental market in the UK, for example, declined from 4B£ in 2005 to 2B£ in 2009. In France, the decline has been even more dramatic, going from 2B€ in 2005 to 0.5B€ in 2009. The positive factor is that there are other ways of ‘renting’ movies, notably digital movies on TV and TV video-on-demand. Only in France TV-VoD accounted for almost 1B€ in 2009.
Where is the good news?
Despite 2008’s dire results, total spending is starting to look up in some markets: Germany and France (+1% in 2009), Sweden and Australia (+7% in 2008) are showing signs of improvement.
How do you explain the discrepancies in the different markets?
There is no simple explanation for either growth or decline, each market is unique. In the UK the recession had a major impact. More than 900 retail stores closed in 2008. There is also a strong competition from games software (the spending on that market grew 20% in 2008 compared to a decline in video spending of 3%). In Germany there is an active early adopter segment. Blu-ray is already being promoted aggressively and prices are declining. France had two major changes with new laws. Firstly, the sales persons are allowed to sell DVDs with a price below the cost. Secondly, the government reduced the obligatory window between theatrical and DVD rental, from six months to four. These two factors have radically affected the market conditions. In 2009, France will be the only country to have value growth, even if 2010 is expected to be poor. Italy and Spain have similar market characteristics: horrendous piracy and rental shops closing every- where. Fast broadband, technological literacy and lack of legal alternatives boost piracy. In southern countries in-home entertainment is less of a priority, especially in a recession period.
What about digital delivery?
European online movie spending will reach almost 400M€ in 2013. Two thirds of this will be from the five big countries (UK, France, Germany, Italy and Spain), compared with 74% of physical video spending.
Which are the factors needed for digital growth?
We believe there are 5 important elements that have to be matched to ensure digital growth: 1 broadband penetration and real achievable speeds; 2 availability of legitimate and compelling transactional online services (you do not have to subscribe); 3 availability of legitimate free online services; 4 regulatory environment and cultural attitudes towards piracy; 5 limited alternative options for media consumption.
Where are we at the moment?
Everything today shows that to have a valid digital market, you need a device. People want to watch movies on the TV set. This is confirmed by Apple’s and Microsoft’s dominance. Devices are essential for transactional online movies. iTunes generated 82% of the US digital retail market. On the rental side, Xbox has captured more than 30% of the US digital rental business. In Europe the market is more polarised, iTunes dominates the market.
How can people connect computers to televisions?
Games consoles will continue to be the most common connected services in the living room, but there are also other devices, like Wii, Blu-ray players or pay TV boxes. According to our analysis, the pure play online movies business is unsustainable. The iTunes domination is conditioning the market. iTunes pays 100% and even more to the right holder to secure the service. Sometimes iTunes is selling at loss. Because iTunes dominates, consumers assume that what iTunes is charging is a fair price. If everyone else is charging more, consumers don’t like it. As a result, many stores are making losses on new release digital retails, even at higher prices. In 2008, more than 10 online movie stores closed in the US and Europe. The reason why Apple is selling at below the buying price is because they are not interested in selling videos, but iPods….
Is the way consumers are consuming home entertainment changing?
There is no precise answer. What is sure is that movies performance is heavily title-driven in digital, especially in key demographics. There are some warnings. If we compare the movie market with the music market, we see that digital music sales have been declining for the last 6 years. Online and mobile sales are growing quite significantly, but they are not compensating the general decline. The second warning is what is happening in South Korea. Physical video will be 2.4M$ by 2013 but digital will be worth 17M$. Digital volumes are already high, however titles are typically sold very cheaply (3.19$) to buy-to-own. For right holders the growth of the digital market will not compensate what they have lost on the physical side.
Is entertainment spending growing?
Yes, annual entertainment spending is still growing. If we take the US example, households will spend over 1,300$ in 2013 (pay-TV, subscription, physical video, digital and delivery to mobile phones). The shift to higher-margin generated by the Bluray format will return video market to a low growth in 2010-2011, before declining again.
What does all this mean for animation?
There is very limited data available on genres across any territory. We cannot say how many animated or kids titles have been sold in a given territory. There are only 8 countries in Europe where we can get some data on genres. Data on sub-genres are even more limited. Even when we have data, there are significant methodological differences between countries. If we try to quantify the market for children’s animation in the UK, we realise that animated movies are categorised as children’s titles, not feature films. The sector is heavily dominated by US studios (Disney generates 1 in 3 sales). The majority of pre-school/school-age titles are also animated. The competition from catch TV is squeezing pre-school DVD or VoD sales: it is much cheaper to watch a programme over and over again on TV rather than buying a DVD. Screen Digest estimates that in the UK 90% of the kids’ sector is animation.
Will Blu-ray boost sales of animation?
Probably yes. CGI is excellent in high definition and Blu-ray will, eventually, be essential for true 3D. However, the market is still marginal. In the UK only 10% of the DVD copies of Wall-E were sold on Blu-ray. Little change can appear with the Christmas promotions. Nevertheless, we are still at early days for kids’ titles (less than 5% of 2008 UK sales on most titles).
At the European level, children’s titles accounted for 14% of Europe’s DVD market in 2008 and at least 90% of these were animated. If we move to digital delivery, we realise that very limited data is available on downloading by genre. We can use the iTunes data to have an idea of the impact of animation products. Two animated movies made the US 2008 Top 10 iTunes downloads (Wall-E and Kung Fu Panda). Animation has featured in weekly iTunes charts in both the US and UK, showing that there is a demand for animation products.
What is the main conclusion of your analysis?
As far as physical video is concerned, we see that there is a growing demand for animated movies, but the market is dominated by Hollywood titles. DVD sales of pre-school animation are squeezed by kids’ TV channels, but there is a longer-term potential for Blu-ray growth to feed 3D TVs. As far as digital delivery is concerned, there are no reasons why animated movies should be any less popular online than through other channels. Analysis confirms that there is a strong demand for short-form TV content, but it is not sure whether people are prepared to pay such content. In conclusion, there is no ‘one size fits all’ solution. As with all digital delivery, windows are the key to success. The dates of release on each platform are crucial. To optimise revenues, each title’s release strategy should be tailored to its particular audience, appeal and viewing potential. Each title has to be seen individually.
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