By 2014 consumer spend on digital content across video (including paid for online and pay TV VoD), gaming and music will reach nearly $52bn, accounting for 46% of total global spend across packaged and digital media. This compared with the 24% share in 2010, demonstrating that this $113bn industry is going digital.

"The decline in packaged media across video, gaming and music has attracted a lot of debate regarding the future of entertainment content, but packaged media still plays a huge part in total sales. Combined with the availability of new platforms, digital and packaged media together will still achieve $112bn in revenue in 2014.

Consumers spent $42 billion on DVD and Blu-ray globally in 2010. In 2011, revenues will still be $40 billion. "While packaged media is declining, it certainly isn't falling off a cliff," explained Futuresource Senior Analyst, Mai Hoang at this year's Futuresource Entertainment Summit. “Packaged will continue to produce significant revenues in the coming years, still generateing $33bn in 2014, accounting for 72% of total consumer spend."

Sell-through currently accounts for the majority of total revenues. "2014 will see sell-through account for 70% of total physical video spend, of which Blu-ray contributes over 50%, compared to just 13% in 2010. Globally, DVD and Blu-ray rental is still significant, although popularity varies greatly between territories - in Japan, rental accounts for over half of total spend while in the European markets, rental barely accounts for 10% share."

While Blu-ray is gaining traction, growth in the new format will not be enough to compensate for the decline in DVD. Any growth in the home entertainment industry will need to come from digital content distribution, though key challenges for digital video include the wide availability of other online content, in particular free content, and the ongoing consumption of illegal video.

"An estimated 400 billion videos were watched online last year in the US, most of which were viewed for free via services like YouTube and Hulu," said Hoang. "In Western Europe, paid-for online video accounted for just 2% of total video spend and 5% in the US, but the market is gaining ground and expected to increase to 12% and 16% respectively by 2014."

Global paid-for online video and pay TV VoD revenues brought in just below $6 billion in 2010, a figure rising to $7 billion in 2011.

In Western Europe Apple, Microsoft and Sony are the main contenders in the paid for online video market, while smaller service providers continue to fuel the competitive environment. As a result the market is hugely fragmented, with a variety of services offering very different business models.

A number of strategies are being trialed to build bridges between digital and physical content, including industry initiatives to push digital through bundling, experimentation with release windows and exclusive downloadable content. "For digital, the online user experience needs to be as seamless and enjoyable as possible for the video industry to maximise the future opportunities and make this revenue stream really perform," concludes Hoang.

Story filed 06.07.11