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Blu-ray heats up in chilly home-video market

Ben Fritz
Los Angeles Times (MCT)

LOS ANGELES — Blu-ray continued to blossom over the holidays, but Hollywood didn't get any relief from plunging DVD sales, which still account for most home-video revenue.

According to data compiled by the Digital Entertainment Group, a home entertainment trade organization, shipments of high-definition Blu-ray discs grew 35 percent in the U.S. to 38.6 million in the fourth quarter, the biggest period of the year for the industry as consumers buy gifts for the holidays.

Shipments of standard DVD discs fell 17 percent from the same three-month period in 2008 to 374.7 million. That's better than the 31 percent plunge the previous year, when the bottom first fell out of the DVD market as the recession hit and consumers started migrating toward rentals over purchases. However, several home entertainment executives have said they were hoping DVD sales would come closer to stabilizing last quarter compared with the previous year's free fall.

Overall revenue from DVD and Blu-ray sales dropped 14 percent in the fourth quarter. That combined figure, all that the DEG provided, masks a much bigger drop in the standard DVD category, since Blu-ray sales rose more than 35 percent.

"We have seen tremendous growth in both Blu-ray hardware and software," Ron Sanders, president of Warner Home Video and leader of the DEG, said in a statement. He added, hopefully, "We are looking forward to seeing some stabilization in the packaged goods sell-through business in the coming year."

Consumers have increasingly turned to rentals, rather than purchases, during the economic downturn, evidenced in a 4 percent rise in DVD and Blu-ray rental revenue last year to $6.5 billion. As Rentrak Corp., which provided rental data to the DEG, reported on Tuesday, all of that growth was attributable to bargain $1-per-night kiosk company Redbox and mail subscription company Netflix Inc.

Total spending on Blu-ray discs surpassed $1 billion last year for the first time, hitting $1.5 billion. Sales of the high-definition discs grew 70 percent to more than $500 million, while rentals increased by 48 percent to about $1 billion.

The higher demand for Blu-ray movies was fueled by a rapid increase in the number of devices that can play them. Consumers bought more than 7 million Blu-ray players in 2009, bringing the total in U.S. homes to about 17 million. More than 4.5 million were bought in the fourth quarter alone, driven by steep price cuts that brought down the cost of the most basic players below $100 at some stores.

Digital downloads via the Internet and cable systems also grew significantly in 2009, with revenue up 32 percent to $2.1 billion. Video-on-demand rentals were particularly fruitful this fall, rising 63 percent in the fourth quarter. One of the main reasons for that increase is that studios have been moving up the date at which they offer movies for VOD, in some cases to the same date or even before they are available to buy on DVD.

The growth in digital, Blu-ray and rentals was not enough, however, to make up for the big drop in standard DVD sales and rentals. Though DEG didn't specify how much it fell, standard DVD is the only category that didn't rise, driving down total home entertainment spending by 5 percent to $20 billion in 2009.

Domestic box-office sales, meanwhile, rose 10 percent last year to $10.6 billion.

Included in the 2009 report was some surprising news about the past: DEG revised downward its estimates of consumer entertainment spending during the last decade. For every year since 2001, total spending is now down, in some cases significantly, from what was previously reported. In 2008, for instance, DEG now says total home entertainment spending was $21 billion. Last year, the group said the figure was $22.4 billion.

A spokeswoman for DEG attributed the change to revised data from Rentrak.

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