Here’s the reality of home video: Most people still watch DVDs and Blu-ray discs. The NPD Group’s “Entertainment Trends in America” report released in April found that consumers spend 78% of their home video budget on DVD/Blu-ray, 15% on services that offer both physical and digital options like Netflix (NASDAQ:NFLX), and 8% on purely digital services.
Wrong. It’s not how consumers spend their money that matters, but how much they spend — and they aren’t spending as much. Disc-based movie sales declined 9% between March 2010 and March 2011. Sales totaled $7.8 billion last year, down drastically compared to five years ago, when they totaled $13.7 billion.
So here’s the real reality: People watch discs, but they aren’t spending very much on them, nor are they spending very much on home video at all. The hope is that UltraViolet technology and now — for Warner Bros in particular — Flixster will turn that trend around. What moviemakers and their shareholders need to understand, however, is that consumers are becoming less and less interested in ownership.
UltraViolet, for those unfamiliar, is a cloud-based digital distribution service backed by the aforementioned companies as well as Comcast (NASDAQ:CMCSA), Lionsgate (NYSE:LGF) and Viacom (NYSE:VIA). It gives consumers who buy a DVD or Blu-ray version of a movie access to a digital version of that movie, which can be downloaded repeatedly on other devices because UltraViolet stores the user’s digital rights info. The first film to use the service, Warner Bros.’ Horrible Bosses, released in October, but UltraViolet’s true juggernaut is Harry Potter & The Deathly Hallows Part 2 released Nov 11.
Warner Bros. also is in charge of the technology consumers use to get their UltraViolet movies. Flixster — formerly a social network for movie fans purchased by WB in May for $75 million — is the access point for downloading UltraViolet movies. Users open an account, giving them access to purchased movies, but also a Facebook-like profile that shows what movies they like, what they own and what else they’ve viewed through Netflix, streaming service Hulu or even Apple‘s (NASDAQ:AAPL) iTunes.
Eventually, Flixster will itself be an iTunes-style storefront, selling UltraViolet movies from all supporting studios directly, thus replacing lost DVD sales.