Filling the spending gap

Consumers are spending less on transactional in-home entertainment, particularly on packaged media, than they were five years ago, but growing demand for VOD and digital delivery is beginning to offset – if not compensate for – the decline, says MARIJA JAROSLAVSKAYA, analyst at Screen Digest.

Within the world of paid-for in-home entertainment there are two basic payment models – transactional or subscription. In the past, music and video were always paid for transaction by transaction, with the price reflecting content length (eg, music singles or albums) and the type of duration of ownership (movie rental or purchase). The exception to this rule came in the form of pay TV where technological limitations (you either had it or you didn't) meant that a subscription model was required.

However, in recent years the lines have blurred. While subscription pay TV continues to expand, today's TV VoD services allow consumers to access TV content transactionally. Meanwhile, companies like Netflix and Napster (in its legal incarnation) have extended the subscription model to the video and music businesses respectively, with varying degrees of success.

Meanwhile, consumer spending on in-home transactional entertainment is on the decline across the major Western markets. The average US household is now spending 20% less on transactional entertainment per year than it did in 2004. A similar trend can be seen in Germany, while in the UK and France the declines are even steeper (down 26% and 40% respectively).

In 2009, according to Screen Digest analysis, the average household in both the US and UK spent about €175 a year on transactional in-home entertainment. Meanwhile French and German consumers spent considerably less – €94 and €73 respectively. In the past five years, consumer spending per household has declined the least in Germany in absolute terms (down €18). Over the same period, the average US household has reduced its spending on transactional in-home entertainment by €42. The downturn is steepest in the UK and France, where the average household now spends €64 and €63 less than in 2004 respectively, (US and UK figures are converted at fixed 2009 exchange rates to exclude the impact of exchange rate fluctuations.)

However, over the next four years, Screen Digest expects household spending on entertainment to remain relatively stable across all four markets. While rising Blu-ray adoption will help offset the reduction in household spending on DVD, it's the growth in pay TV VoD and digital delivery of music and video that will really cushion (although not fully compensate for) the decline in transactional spending.

Collapse of physical music is key
The erosion in sales of CDs (CD albums make up over 90% of spending on physical music in all four markets) is the biggest reason for the steep decline in spending on transactional entertainment.

In the US, average spending on packaged music products has plummeted by 64% from just over €66 in 2004 to €23.50 in 2009. The US market is set to fall by a further 60% in the four years to 2013, when it will generate less than €15 in annual spending.

The situation is similar in France and the UK where household spending on physical music has fallen 59% and 50% respectively in the five years since 2004 and will continue to erode. In Germany it is slightly better; despite a decline of 36% in household spending over the past five years, physical music's share of transactional spending was still over 40% in 2009, compared with 27-30% in France and the UK and 13% in the US.

And online music sales will not offset the decline in spending on physical music formats. In the US, online music will account for €15 per household per year in 2013. This is almost exactly the same amount as the average US home will spend on buying CDs that year, but still less than a quarter of what they spent on buying physical music in 2004.

Online music will actually be slightly more important to UK consumers, generating €18.40 in 2013 (just over 10% of household spending) but in Germany and France online music will account for just €5.30 and €4.20 respectively.

Video holding up better than music
The physical video market has held up better than the physical music sector. The average US household spent €113 on the transactional purchase and rental of physical video in 2009 (down 18% from 2004) while in British homes annual spending is down 21% to €1 08. In France, spending on physical video will have shrunk by 35% to just €56 in five years.

Transactional video spending will be lowest in Germany, at just €39 per household, but since the Germans are traditionally less prone to spending on video products this represents a more modest decline of 1%. Although the fall in DVD spending will accelerate in the next few years, the gradual shift towards high-definition – and higher priced – Blu-ray Discs will reduce the overall decline in physical video spending.

However, growth in subscription rental services such as those offered by Netflix (in the US) and LoveFilm (in the UK and Germany) will further dampen transactional video spending. By 2013, households in the US and Germany will be spending 6% less on transactional physical video than in 2009, while in French homes the fall is expected to be much steeper (-19%) and in the UK levels will be almost unchanged.

Overall, Screen Digest expects European households to at best maintain their 2009 levels of transactional spending on physical video in the next couple of years.

Online spending to double by 2013
The increasing availability of consumer-friendly hardware-based services, combined with an inevitable evolution in release windows, will spur an almost three-fold increase in annual spending on transactional online video over the next four years.

In the US, spending on this category – which includes download-to-own and pay-per-view movies, TV shows and sports – will more than double from €6.60 in 2009 to €16.50 a year in 2013, or 9.6% of total in-home transactional entertainment spending. Meanwhile, pay TV VoD will continue to represent around 11% of spending.

In the UK, average spending on transactional online video is expected to quadruple in the next four years, reaching 4.3% of spending. Household spending on Germany's online video market will triple, as will spending on the country's hitherto underdeveloped pay TV VoD market (to €2.20), giving the two sectors a combined share of almost 7% of in-home transactional entertainment spending.

Meanwhile, in France, which boasts the most advanced pay VoD market in Europe, pay TV VoD alone will account for almost 11% of household spending in 2013 and transactional online video for a further 5%.

MARIJA JAROSLAVSKAJA is a research analyst in the broadband media team of Screen Digest specialising in music, connected devices, and free online video consumption.
Contact: Marija.Jaroslavskaja@screendigest.com

Article re-printed from the PEVE2010 Conference brochure with permission
...

Article Comments

comments powered by Disqus