New 4K Format, Growing Digital Libraries Invigorate Home Entertainment Market

In the kaleidoscope of business models and formats that make up the home entertainment business, there are some brighter lights.

To those not familiar with the home entertainment business, 4K UHD with HDR and EST may be alphabet soup, but they are the industry stars for those in the know.

EST, or electronic sell-through, is the industry term for digital purchases of content, and in 2018 consumers began to build their digital libraries with gusto, growing the market by double digits. The 4K Ultra High Definition format, with four times the pixel resolution of 1080p HD, and high dynamic range (HDR), featuring wider color gamut, brighter brights and darker darks, is also reinvigorating the market with explosive growth, especially on the physical disc side as consumers take advantage of the full experience only available on 4K UHD Blu-ray Disc.

At the 4K UHD Summit in Los Angeles, director Christopher Nolan noted 4K UHD with HDR is “a mouthful,” but it “really puts us in a position where we can get closer and closer to a theatrical print in the home.” He is a “big fan of the 4K disc because it removes the uncertainties of streaming.

“It’s fantastic for the filmmaker to have a physical media that eliminates the variabilities, the compression and so forth,” he said. “That’s the gold standard that streaming is going to have to reach.” “The 4K UHD format, across both hardware and software, is providing a meaningful boon to our business, creating retail opportunity as consumers look to invest in the most technologically advanced viewing experience in the home,” says Eddie Cunningham, president of Universal Pictures Home Entertainment. “4K UHD discs already account for almost one in 10 new release discs sold in the U.S.”

“4K UHD sales are increasing with each title that is released, and we expect that upward trend to continue into next year,” adds Mike Takac, Warner Bros. Home Entertainment exec VP and general sales manager. “And even with the proliferation and advancements in streaming services, physical discs still offer the best quality viewing experience for home consumers and also are the best value proposition.”

While overall disc sales remain challenged (down 11.5% in the third quarter), sales of 4K Ultra HD Blu-ray Discs, which often include a digital copy, soared 68% in the quarter from the same quarter last year, according to the latest numbers from DEG: The Digital Entertainment Group. At the end of the third quarter, there were 392 titles available on Ultra HD Blu-ray Disc (595 available digitally), according to the DEG. U.S. 4K UHD disc sales are projected to almost double this year to more than 11 million units, Cunningham notes.

David Kite, senior VP of product management and distribution strategy, Walt Disney Direct-to-Consumer & International, says his studio is “excited about growth prospects for 4K UHD on physical as it delivers such a rich visual experience that’s so well suited to movies like ‘Coco’ or ‘Black Panther.'”

“It’s fantastic for the filmmaker to have a physical media that eliminates the variabilities, the compression and so forth. That’s the gold standard that streaming is going to have to reach.” Christopher Nolan

“4K UHD has really transformed the home viewing experience and clearly consumers are getting it,” said Bob Buchi, president, worldwide, Paramount Home Media Distribution, at the Nov. 6 UHD event. “Product sales are up 87% in comparison to the first three quarters of last year.”

The DEG reported more than 4.2 million 4K Ultra HD TVs were sold in the first three quarters of 2018, bringing the total number of U.S. households to more than 42 million, an increase of 80% from the prior year period. Approximately 2.3 million Ultra HD Blu-ray playback devices (both dedicated players and video game consoles) were sold through to consumers in the first nine months of the year.

“Combined with technological advancements in film mastering and high dynamic range color, 4K is now the de-facto media format you didn’t know you couldn’t live without until you experience it fully,” says Miguel Casillas, senior veep of production, home entertainment and digital distribution, at Lionsgate.

The studios are feeding that market for the holiday season with releases such as Universal’s “The Big Lebowski” 20th anniversary 4K Blu-ray set, Warner’s “2001: A Space Odyssey,” and Sony’s “Philadelphia” 25th anniversary 4K Blu-ray, which is being released as part of a partnership with the (RED) Foundation and Coca-Cola to help fight HIV/AIDS.

Meanwhile, years of sowing the seeds of digital collection with an early release window before disc, special features and rights-locker services, including the year-old Movies Anywhere service and app, have finally begun to bear big fruit. Consumers are starting to buy titles digitally in greater numbers. Digital purchases of movies, TV shows and other filmed content rose 18% in the third quarter compared with the same quarter in the year prior, a significant uptick from the single-digit gains posted in prior years, according to DEG data. For the year through Sept. 30, EST spending totaled $1.8 billion, up more than 12% from the comparable period in 2017.

“EST continues to grow, with that consumer base gravitating because of the ease of use and flexibility of digital purchase,” says Jason Spivak, exec VP of worldwide digital distribution at Sony Pictures Home Entertainment. “This growth has also been driven by the continued addition of value to digital purchase, including expanded special feature offerings and interoperability across platforms via Movies Anywhere.” “We are experiencing double-digit growth in EST transactions this year and we expect to maintain that growth through 2019,” says Warner’s Takac. “Our involvement with Movies Anywhere is adding value to the EST consumer by making content easier to access and watch anywhere on a wide variety of devices. For supporting digital platforms, EST ownership includes all the special features available on physical product, making digital ownership an easy to use robust consumer offering.”

“We continue to focus our marketing efforts on educating consumers about the ease of utilizing digital, the advantages of the early window, and the convenience and flexibility of Movies Anywhere,” adds Chris Oldre, exec veep of pay TV, digital and international distribution, Walt Disney direct-to-consumer & international.

Movies Anywhere, the digital movie rights locker storage service and app backed by most of the major studios, is an outgrowth of Disney’s locker service. It celebrated its first birthday in October with 6 million registered users, 150 million movies collected and more than 1 billion minutes viewed. Launched in October 2017 with support from five of the six major studios (Disney, Fox, Warner, Universal and Sony), four of the biggest online retailers, and an opening library of more than 7,300 movies, the service now offers more than 7,500 movies and has added FandangoNow and Microsoft Movies & TV to its digital retailer lineup that included iTunes, Google Play, Walmart’s Vudu and Amazon Prime Video at launch. (Paramount Pictures and Lionsgate are not part of the service, which also does not yet feature TV programming.)

“FandangoNow’s EST business growth is even faster than our VOD growth, and that’s exciting,” says Cameron Douglas, VP of home entertainment for Fandango’s on-demand video streaming service FandangoNow, which joined Movies Anywhere in March.

“4K UHD has really transformed the home viewing experience and clearly consumers are getting it.” Bob Buchi

In addition to Movies Anywhere, interactive extras, premium formats such as 4K UHD with HDR and retailer offerings such as Vudu’s “Mix & Match” (offering multiple digital movie purchases for a lower price) are also boosting digital buying, adds Michael Bonner, EVP of digital distribution at Universal Pictures Home Entertainment.

For some time, the spotlight has been on the subscription streaming video-on-demand business (SVOD), with Goliaths Netflix, Amazon and Hulu dominating, and for good reason. Consumer spending on streaming subscriptions rose more than 30% in both the third quarter and the first nine months of this year, totaling an estimated $3.3 billion and $9.4 billion, respectively, according to IHS Market data cited by the DEG. And the market is about to get bigger. Both Disney and WarnerMedia (the new parent of Warner Bros., HBO and Turner following the AT&T merger) are readying streaming services for 2019.

Disney’s service, Disney+, has been the studio’s streaming focus since it in 2017 announced it would withdraw content from Netflix. Still, Walt Disney CEO Bob Iger in a Nov. 8 fiscal call indicated the studio would retain windows between its businesses.

“The home video window continues to be quite important to us,” said Iger. “You’ll likely see us protect that.”

Home entertainment executives say the different businesses can coexist.

“Our EST business continues to grow and benefit from the adoption of digital services, so we are well positioned across all platforms to serve the consumer anytime, anywhere,” Universal’s Bonner says. “It’s important to recognize the need for choice as consumers navigate the different options available in the home entertainment landscape,” Sony’s Spivak says. “Within that, physical media offers an expanded and optimized experience, as well as a way to build collections. That’s important to a significant portion of the consumer base, and we anticipate the coexistence alongside streaming to continue in a mutually beneficial fashion.”

Source: Variety Media