Blu-ray Has Arrived, Without Question…But For How Long?

While it isn’t a surprise to many of us who work ‘behind the curtain’ of the home entertainment industry, we’re certainly pleased to see the recent business news which notes the strong performance of Blu-ray Discs in the consumer marketplace.

On Tuesday, February 1, Home Media Magazine reported a note from Morgan Stanley that stated that that Blu-ray sales overall were up 11% for 2011, even in the face of strong competition for consumer dollars from varied disc rental options such as Netflix and Redbox and VOD via brand names like Netflix, Hulu and ambitious up-n-comers like FlixFling. This echoes an early January report from the Digital Entertainment Group (DEG), also reported in the HMM, that 2011 Blu-ray Disc sales were up 20% for the year.

While the figures don’t match, it’s clear that many consumers are still interested in being content owners than simply viewers. And their interest is not reserved for just the latest blockbusters, either. The 3rd quarter of 2011 saw the release of some compelling catalog content as well, including fan favorite Star Wars, which has helped propel the format toward these good sales numbers.

From my POV, these are the hallmarks of a maturing format, when studios not only make sure that catalog titles have a place on their release slates, but they also see significant sales from fans who are eager to grab up their favorite films on the best home entertainment medium available. With average title prices dropping and an ever-expanding selection now available to the discerning consumer, Blu-ray is becoming one of the standards of the marketplace, rather than a luxury good only of interest to the fan-boys.

At Giant, we’ve seen increased interest in Blu-ray for titles ranging from foreign films to vintage TV shows and from clients ranging from independent producers to niche TV networks, from Fortune 500 content companies to sport leagues. Without question, distributors get that Blu-ray has become a distribution necessity for a broad range of titles, rather than an afterthought.

Yet, many would agree with the conventional wisdom that Blu-ray won’t enjoy the same market dominance that DVD enjoyed before it will be eclipsed by the more immediate and individual nature of digital delivery. The DEG notes that total VOD revenue was only a few percentage points behind Blu-ray ($2 billion vs. $1.87 billion) in in 2011. It’s possible, even likely, that VOD will pass Blu-ray as soon as 2012.

The promise of being able to access nearly every title in cinema history (for all practical purposes), ready for streaming directly to the device of my choice is a compelling one to most consumers. Thinking more broadly, perhaps VOD really addresses a consumer demand which has been ignored thusfar, a strength which will continue to fuel its rise.

It’s a cruel fact of the entertainment business: Not every movie or show merits repeat viewings. Sometimes people just want the experience. Previously consumers HAD to buy new media or undergo onerous rental experiences, neither of which allowed for the servicing of every taste, only the median. But now with Netflix, Redbox, Hulu, FlixFling, et al, the ‘long tail’ can be served…and served more efficiently. While these solutions offer lower margins for the studios, this may be the future. We may be seeing a significant expansion of the availability in entertainment and a change in how audiences consume it.

As the trials and tribulations of the music industry demonstrate, selection and immediacy often trump quality. Detractors of MP3 decry the weaknesses of this format, but it seems evident that consumers value greater selection over dynamic range, variety over quality.

Despite these encouraging numbers, behind them is the stark fact that physical media IS in decline. While the increase in Blu-ray sales numbers is encouraging, it has not filled the gap left by the larger decline in DVD. Content owners should take time to consider how the roller-coaster ride of the music industry may foreshadow similar disruptions in the movie business and use this to prepare for their own necessary business evolutions.

Forward- looking companies and executives must determine how to maintain and exploit legacy formats and their fan base while simultaneously embracing and exploiting the new ones as well. There’s room for both, but the days of complete market dominance, of the one obvious choice and scorn for all others, are gone.


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