Total online DVD retail revenues
195. Sales of movies on DVD through online retailers showed strong growth in 2006, rising by 26 per cent from 19m in 2005 to 24m in 2006, outpacing the four per cent growth in sales through brick and mortar stores. The e-tail space has been less susceptible to the effects of declining prices than the offl ine sector – the average DVD price was stable over 2006 - which means spending has risen in line with unit sales.
196. It should be noted that except in the case of major players like Amazon, where of the DVD market in 2006. Like the three
other supermarkets profi led here as principal providers, Morrisons is supplied with DVD product via a wholesaler, namely EUK. The partnership applies to catalogue product only as the supermarket sources new releases from distributors directly.
Blockbuster
192. Key players in the UK video rental sector, Blockbuster included, are increasingly shifting the emphasis of their business from rental to retail in order to combat the fall in consumer demand for traditional offl ine rental. In mid 2004 Blockbuster started a rebalancing process in two trial stores with the focus on providing a strong retail offer alongside its core rental business which was subsequently rolled out across all of its 695 stores. Blockbuster is one of many rentailers which sells on previously viewed titles (PVTs) when a title is no longer new enough to justify retaining a high number of units on the shelves. However, revenues from PVTs have no impact on distributor level revenues and are not included in industry assessments of consumer spending on rental, therefore they have been excluded from our analysis. The same goes for DVD trading - the practice of accepting used videos from consumers in return for cash or store credit - in which Blockbuster also engages.
Sainsbury’s
193. At three per cent, Sainsbury’s had the smallest DVD retail share of all the supermarkets in 2006. This is perhaps a refl ection of the importance that Sainsbury places on home entertainment as part of its product mix, at least in relative terms compared with the likes of Tesco and Asda. Indeed, the retailer recently opted to exit the rental side of the DVD business – it had been offering rent-by-post in association with LoveFilm. As is the case for its competitors in the supermarket sector, Sainsbury’s DVD product is supplied via a wholesaler. THE had been its wholesale partner but following Online DVD retail - Market data
Figure 64:
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Revenues £m 37 88 136 198 210 254 245 242 245 251
Average DVD price £ 12.38 11.50 10.29 12.62 10.77 10.73 10.65 10.75 11.05 11.52
Unit sales m 3 8 13 16 19 24 23 23 22 22
Cashfl ow chain and margins
197. Of the £298m UK consumers spent on DVD retail through online stores in 2006, retailers received £254m. Studios’ share of these revenues was around 79 per cent, that is to say around £202m.
198. In terms of gross revenues, with consideration to VAT, movie rights-holders account for more than two thirds of value, with retailers retaining 18 per cent of sales.
Principal Providers
199. The online DVD retail sector is something of a duopoly with Play and Amazon accounting for around one third of the market each. The remaining third of the market is split amongst a range of e-tail services, including the e-tail arms some of the principal providers involved in the offl ine DVD retail business. It is no coincidence that both the leaders in the online DVD retail sector are out-and-out etailers. Evidently, the fact that Amazon and Play are not concerned with bricks and mortar retailing works in their favour in the online space.
Play
200. UK online retail start-up Play overtook Amazon in 2006 to become the leading e-tailer of DVD, accounting for six per cent of all DVD fi lm sales and 36 per cent of DVD fi lm sales through online stores. Launched in 1998, Play specialises in home entertainment with DVD being a core part of its product mix. The retailer sources its product direct from distributors and has a reputation for ‘grey product’. That is to say, it has been reported that Play imports non-UK product for sale in the UK and buys up wholesaler overstock.
Amazon
201. Combined sales of DVD through US e-tail giant Amazon and its dedicated UK portal earned Amazon a 32 per cent share of the online market and a fi ve per cent share of all UK DVD sales including those through offl ine retailers. Amazon’s US and UK services accounted for one per cent and four per cent respectively in 2006. In the UK Amazon maintains a relationship with DVD distributors, sourcing product direct although it occasionally employs EUK as a middle man. In addition to DVD retail through the post, Amazon offers DVD on a subscription rental basis. It is possible that, down the line, it could sales through its US site are counted, we do
not include units purchased through offshore etailers in our numbers. In any case, we believe sales through such channels are relatively insignifi cant so would not affect overall market trends.
Online DVD retail - Cash Flow Chain (2006) Figure 65:
Source: Screen Digest analysis of BVA/TNS data
Consumers £298m VAT £45m Others £78m Amazon £86m Play £91m DVD production costs £97m Studios Retailers Consumers
Studios and movie catalogues £202m
Online DVD retail – Share of gross revenue Figure 66:
Source: Screen Digest
Studios
Retailers VAT
Total £298m (100%)
Online DVD retail - Studio revenues breakdown Figure 67:
Source: Screen Digest analysis of BVA/TNS data Consumers £298m Online retailers £254m VAT £45m Sony £28m Fox £36m Independents £37m Paramount £15m Warner £31m Universal £30m Buena Vista £24m Studios Retailers Consumers
(around 12 per cent), new release is much more profi table than catalogue. On average, a catalogue title brings in a net profi t of just under £1 and a new release around £1.50. 203. The fact that new release is more profi table than catalogue means that some bricks and mortar retailers are reluctant to devote fl oor space to older titles. This trend is especially pronounced in non-traditional outlets for DVD, such as grocers. In these retailers audio-visual product is fi ghting a constant battle for space against other retail categories such as food and clothing. Furthermore these retailers sometimes eat into their own profi t margins on new releases by pricing the biggest titles very aggressively and attempting to undercut everywhere else on the high street. This strategy increases footfall in store and encourages the sale of its other products. This is in stark contrast to audio-visual specialists such as HMV and Virgin. These retailers maintain their margins on new release but profi t from being a destination store for fi lm enthusiasts by supplying a large range of catalogue and specialist titles. But even the largest specialist outlet cannot compete with the potential range of catalogue of an online retailer. Their ‘elastic walls’ preclude them from the pressure on shelf space experienced by bricks and mortar retailers. For those etailers that focus on home entertainment – principal providers Play and Amazon for instance – the breadth of titles available in their online stores is their unique selling point (USP).
The long tail
204. In 1997, the year before DVD was launched, 5,349 titles were released into the video market. By 2005 the annual release slate had increased by 62 per cent to 8,679 titles with the DVD format acting as a catalyst for growth. The increase is not due to a rise in the number of new releases from the major Studios, it is instead an indication of the also distribute movies digitally after setting a
precedent in the US with the launch of digital retail and rental service Unbox in October 2006.