Amidst our excitement — quite genuine, we assure you — about today’s Netflix – Microsoft announcement and the prospect of digital delivery in general, it’s worth pointing out that the vast majority of people are going to be consuming movies at home via plastic discs for quite some time.
Not only that, but the descent of the DVD market, long-taken for granted, may not be as steep as people think. So says Pali Research’s Rich Greenfield (reg. required) who’s been a DVD bear for quite some time. But today Rich says he was bit overzealous in his predictions for a decline in 2008:
Consumer spending on DVDs increased nearly 2.0% in the first half of 2008, compared to a low-mid single digit decline in spending during the first half of 2007. In turn, our full-year 2008 estimate for DVD spending of down 4.6% compared to last year’s 2% decline appears too conservative. The 1H ’08 increase was driven 2/3 by units and 1/3 by pricing.
We are raising our full-year DVD spending estimate to flat, with sell-thru down 1% and rental up 1% (implies second half spending down 2%, with sell-through down 2.5% and rental down 1%). Given the strength of theatrical releases during summer 2008, particularly the strength of non-sequel films (which generally perform better in home entertainment), we believe our revised estimates could still prove overly conservative.
While we are not bullish on the performance of home entertainment as a sector over the next few years (as standard def DVD player penetration has matured), the increase in 1H 2008 DVD spending should remind investors that the DVD industry is not rapidly declining in favour of digital distribution (whose revenues remain completely insignificant to the Hollywood studios).
Our emphasis on that last line, but worth thinking about as we watch the jockeying back and forth between, say, Apple and NBC U over iTunes pricing. It’s an important fight, because eventually, Apple may be one of the key players in delivery of entertainment to the living room. But it’s not now, which is why Jeff Zucker and company can afford to play hardball.