Insights on today’s DEG Year-End 2020 Home Entertainment Report

All right, as expected today, the Digital Entertainment Group (DEG) held its January virtual expo and released a summary of its preliminary Year-End 2020 Home Entertainment Report. This expo is typically an in-person industry reception held at CES in Las Vegas, but due to the COVID-19 pandemic both CES and the DEG Expo have of course gone virtual this year. And as expected, this year’s report offers both good news and bad news, but also some rather dramatic big-picture observations.

Let’s knock out the bad news first: Sell-Through (read: physical media) consumer spending for 2020 was $2.45 billion, a drop of 25.6% from 2019.

A few days ago, we previewed the likely number for 2020 using the weekly Media Play News disc sales data here at The Bits, which indicated an overall drop in physical media sales of 20.46%. Well… it turns out that, based upon the official DEG data, the drop was about 5% more severe than we anticipated. As I mentioned a week ago (back January 20), that’s still in line with my general prediction from July, which was that 2020 would see a decline of anything between 9-30% in physical media sales. Obviously, there were just too many wildcards in the midst of the pandemic to be more specific. [Read on here…]

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But the result, now that we have more complete data, is right in line with the long gradual decline we’ve seen in physical media since 2011, which (per the DEG) now looks like this:

2020: -25.6%

2019: -18%

2018: -14.6%

2017: -14.1%

2016: -9.6%

2015: -12%

2014: -10%

2013: -8%

2012: -5%

2011: -12.3%

For the record, the 2020 quarterly DEG physical media numbers now look like this:

Q1 2020 (Reported): -22.43%

Q2 2020 (Reported): -11.11%

Q3 2020 (Reported): -34.30%

Q4 2020 (Reported): -31.89%

Full Year 2020 (Preliminary): -25.55%

As you can see, that preliminary full year number (-25.55%) is a little higher than the quarterly numbers would indicate (-24.93%), which suggests that the reported quarterly numbers were a little incomplete. That’s not surprising given the chaos of the pandemic, and it also probably explains the difference between the yearly decline we calculated via the Media Play weekly numbers (-20.46%) and today’s DEG number.

So that’s the bad news, and if you’ve been reading The Bits over the past few years, it shouldn’t come as much of a surprise. Again, as I said a week ago, I’m actually pleased in the sense that the decline could have been much worse—especially given the nearly complete lack of new theatrical films entering the home physical media pipeline this past year. The bonanza of catalog releases last year clearly helped to make up for it. And in fact, during the DEG Expo today, Redhill Group analyst Judith McCourt specifically noted that “lower priced catalog [physical media] product did particularly well as the year went on, especially catalog DVD.”

Given all of the above, it’s perhaps not surprising that physical media was a topic that no one on the DEG panel seemed interested in talking about today. In fact, the topic was barely covered, outside of the press release and the comment above. What the panelists were interested in talking about instead was Digital. And that gets us to today’s good news…

Consumer spending on Digital Home Entertainment was a whopping $26.53 billion for 2020, up a massive 32.58% from 2019. That includes Electronic Sell-Through (EST), Video-on-Demand (VOD), and Subscription Streaming (SVOD). Clearly, this was boosted by the pandemic—not just the fact that so many people were stuck at home amid pandemic lockdowns during 2020, but also the fact that what little new release “theatrical” product was available came via Amazon Prime, AppleTV+, and HBO Max. No doubt it was also boosted by the rapid growth of Disney+, and by the debuts of Peacock and HBO Max.

But here is the key insight: 2020 marks the very first time that the rapid growth of digital has outpaced the accelerating decline in physical media. So it almost certainly indicates a long-anticipated inflection point in the shift from disc to digital, and something of a point of no return for the home entertainment industry.

And this is what the various DEG Expo panelists were eager to talk about. Their discussion today covered PVOD (Premium Video-on-Demand), SVOD (Subscription Video-on-Demand), and TVOD (Transactional Video-on-Demand), as well as the subcategories of cVOD (Transactional VOD delivered through a cable or satellite TV service) and iVOD (Transactional VOD delivered through an internet service, such as iTunes, Amazon Prime, Google Play or FandangoNow). All of these categories experienced significant growth in 2020, a trend that’s expected to increase in 2021 and beyond.

Perhaps the most striking thing I heard during the panel discussion today was an insight delivered by FilmRise co-founder Danny Fisher (an experienced film and television executive producer in his own right). Essentially, he said that PVOD was here to stay. Whatever the new normal is going forward, movie theaters would survive but they’ll have to evolve towards more experience content—adding drinks, food service, eSports tournaments, specialty content, etc. He even suggested a belief that Amazon or Apple might buy select theaters locations and combine them with Amazon and Apple-branded stores in the lobby.

Here’s a direct quote from Fisher that I found particularly eye-opening: “Going forward, movie theaters will be more in competition with bowling alleys than digital PVOD.”

Think about that. Whew!

Speaking for myself, my personal takeaways from today’s virtual DEG Expo are as follows:

Physical media is rapidly becoming the niche product in consumer digital home entertainment, compared to digital streaming.

The new normal in the theatrical business is going to look very different than it did before 2020, but will probably not begun to fully reveal itself until mid-2022 (as more and more people are vaccinated against COVID and regain the condidence to do back into theaters, combined with the incentive of long-awaited theatrical titles finally arriving in those theaters).