Hollywood 2017: Subscription Streaming Rises, Disc Sales Decline

New trends emerged in the annual numbers reported by he Digital Entertainment Group, a trade organization that collects the numbers from studios and retailers on a quarterly basis.

The first is that disc sales were eclipsed by subscription streaming numbers for the first time ever.

The $5.4 billion in disc sales fell well short of the $6.2 billion tabulated from SVOD providers like Netflix.

The high margins of disc sales, which are traditionally the biggest revenue stream for U.S. home entertainment spending, had been a rapidly declining contributor to studios’ bottom lines.

Disc sales were down nearly 10% versus 2015 while subscription streaming surged almost 23%. Interestingly, however, the latter figure represents a cooling off from back-to-back 25% levels of growth in this category going back to 2014.

That SVOD is among the revenue streams counted by DEG as U.S. home entertainment spending has been a source of criticism, primarily because disc revenues are being cannibalized because of subscription streaming, which provides lower margins to the studios.

DEG tried to put a positive spin on the numbers by noting that the total U.S. home entertainment spend is up 1.36% to $18.3 billion versus 2015, which saw a lesser increase over 2014. But when subscription streaming is pulled out that number falls to just over $12 billion–a 13% decrease versus the previous year.

The second big change may be more disturbing to the studios. For the first time, spending on electronic-sell-through, or EST, which totaled just over $2 billion, was edged by VOD by just $67 million.

Once propelled by the push of an early window marketed in recent years by the studios as Digital HD, EST platforms like iTunes grew just 5.4% over 2015–a dramatic drop from the  18% growth of 2015 and 30% rate of 2014.

EST was supposed to be the place where the industry converted former fans of discs to a style of digital ownership where viewers could easily download titles from the cloud through initiatives like the Ultraviolet system. But the growth of VOD is a sign that the rental model for single title transactions is persevering on digital too.

DEG also touted the growth of 4K HD products and named “Deadpool,” “Finding Dory” and “Zootopia” among the hottest selling titles of the year..

The declining home entertainment industry has been cited by studio chiefs as an impetus to reconfigure how quickly theatrical movies segue to availability in U.S. homes via streaming.