Bigger Picture Research

Guest post: Russian film distribution market

In late 2009 I flagged up a report on the Russian film industry authored by Nevafilm Research and Rfilms on behalf of the European Audiovisual Observatory.

Nevafilm has recently launched a new, and more detailed, study of the Russian distribution market, available to purchase from their web site (in the interest of full disclousure: I'm not working on commission).

Here Xenia Leontyeva, Senior Analyst at Nevafilm Research, explains what the report covers and how it can benefit industry professionals with an eye on the Russian market:

In a recent blog post, Jim Barratt asked what market players need to know about the film distribution market in the UK. Specialists at Nevafilm Research asked themselves the same question about the film distribution market in Russia last year.

We wondered: do many producers (in Russia and abroad) know what it takes to effectively sell their film on the Russian market? What fundamental knowledge will help them navigate Russia’s vast expanse? Let’s not forget that Russia, with a population of 141 million, boasts a truly massive market, spanning nine time zones and one-third of Eurasia.

Data collected by Nevafilm Research shows that the country has:

• More than 860 modern cinemas (about 2,430 screens, 930 of which are digital) in 330 cities, serving 76 million people. The film distribution market consists of 30 distribution companies and about 500 exhibitors;

[click to enlarge]

• Eighty two million Russians own DVD players. Six hundred thousand own Blu-ray players. One out of two residents of the country buys at least one licensed disc a year, though sales of pirated content remain four times higher. Still, Russia has 60 video distribution companies and more than 40 major video retail chains;

• 140.5 million residents whose homes are equipped for free terrestrial television. Terrestrial TV offers around 30,000 hours of programming a year—that’s 80 hours a day! Films are regularly shown on 20 national terrestrial TV channels, and popular film segments draw between 500,000 to 5 million viewers;

• 72 million non-terrestrial television subscribers. At least 30 cable and satellite television channels specialize in cinema, and are watched at least once per month by between 100,000 and 7 million viewers;

• 35 million people with broadband Internet access and 11 million cable, telecom, and satellite services subscribers with more than 30 paid or free VoD services to choose from.

Our new study, The Film Distribution Market in Russia, goes beyond simply collecting these numbers, and represents an effort to make sense of this diverse market and to help navigate its legislative and socio-economic peculiarities.

This report is no run-of-the-mill year-in-review: it’s a comprehensive collection of information you will need to know to make an educated decision about your film’s future in Russia. What type of film rights should you choose? To whom should you transfer these rights? And how much should you charge? The Film Distribution Market in Russia has the answers to all these questions.

The report will tell you, for example, the USD-RUB exchange rates for 1993, 1998, and 2008. By comparing national currency exchange rate fluctuations with the rate of inflation for the same period, you can see just how hard Russians were hit by the recent world financial crisis.

[click to enlarge]

The report will also give you an accurate picture of population dispersal across Russia’s seemingly endless territories.  You can see just how economically stratified Russia’s society really is and learn the actual effects of the demographic collapse of the 1990s.

We’ve also included detailed information about school breaks and holidays, and a list of more than 30 dates with special significance in Russians’ social life. You’ll learn the crucial differences between the New Year and “Old New Year”, Russia’s extensive winter and spring breaks, National Unity Day and the Day of Accord and Reconciliation.

We provide our own analysis of more than 20 laws regulating the audiovisual sector. We go beyond defining these laws, to describe limitations and preferential conditions placed on the sector’s players, as well as their responsibilities and privileges. We also analyze recent legislative changes and offer a sampling of professional opinions about these changes, selected from the current Russian press.

Finally, we are the only ones offering a definitive list of all major Russian film distribution market players, along with a description of each player. This list includes cinema chains; film, video, television, and Internet distribution companies; content aggregators; terrestrial and non-terrestrial television channels; video manufacturing facilities; retail chains; cable and IP television operators; websites offering VoD services, and more.

The report is written by Russian film industry specialists, based on first-hand data, so you can always be confident that the information is accurate and up-to-date. Since the report was translated into English by native English speakers, you won’t have to claw your way through every sentence.

Unfortunately, Jim was only too right to note in his blog that this kind of market information can’t be had for free. You can find out how to purchase this report at our website. However, we are always happy to talk to you about your personal needs and resources, and we can help significantly reduce your expenses by offering you specific chapters (in digital or print format). Please don’t hesitate to contact us at research@nevafilm.ru.

 

 

 

Xenia Leontyeva
Senior Analyst, Nevafilm Research
www.digitalcinema.ru

 

2009 box office and admissions round up: China, France, Italy, Netherlands, Poland, Slovenia, Spain and the US

As expected, various trade bodies, film agencies and commercial data providers have released year-end box office and admissions numbers over the last couple of weeks, and the picture is a positive one for theatrical exhibition around the world. Here's the first tranche:

China saw its annual box office gross rise 44% above the level recorded in 2008, totalling 6.2 billion yuan ($910 million).

Numbers issued by the China Film Group also include the fact that China produced 456 domestic films in 2009. Nonetheless, the two top grossing movies of 2009 were US studio pictures: 2012 ($67.5 million), and Transformers: Revenge of the Fallen ($63 million). Chinese films shared 56% of the home market, and the best performing local title,  The Founding of a Republic, grossed $61 million.

France also witnessed an impressive year at the box office. Admissions totalled 200.85 million according to estimates by the Centre national de la cinématographie (CNC). This marks a rise of 5.7% over 2008, and the annual total is the second highest in forty years.

French films shared 37.1% of total admissions, which is lower than 2008’s market share (45.3%, largely down to the success of Welcome to the Sticks). US features shared 48.8% of total admissions.

Italy saw box office revenues grow in 2009 (by nearly 5%, to €623 million), but total admissions fell slightly, down 0.3% to 99 million, according to data released by Cinetel.

The Netherlands (whose main public film bodies have recently merged into a new film institute known ominously as eye) fared much better, with a 15.2% increase in ticket sales in 2009 (totalling 27.2 million). Dutch films recorded a market share of 17.4%, pretty much unchanged from 2008.

Poland scored a record high with 38 million admissions in 2009, up from 34 million in 2008 (+11.7%). According to  Dorota Hartwic, writing for Cineuropa.org, the 29 Polish features on release garnered 8.7 million admissions, a market share of 22.9%.

Staying with Eastern Europe, Slovenia saw annual admissions rise 8% to over 2.6 million, according to Matevz Rudolf writing for Film New Europe. Over 140 films were distributed in the country, of which five features and two documentaries were made in Slovenia. These local pictures shared less than 2% of total admissions, and the most successful local title, Slovenian Girl, sold 18,000 tickets.

Provisional data from Nielsen EDI indicates a successful year at the Spanish box office. The territory saw 110 million admissions, with box office grosses totalling around €675 million, the ‘highest  figure in the history of Spanish cinema’, according to Cineuropa.org’s Sergio Ríos Pérez. Local film market share is expected to be around 15%.

And finally, news broke last week that the US box office out-performed sales of feature films on DVD and Blu-ray for the first time since 2002.

Figures compiled by Adams Media Research show that US box office receipts stood at $9.87 billion in 2009, compared with DVD and Blu-ray feature film sales of $8.73 billion (sales of all works on DVD and Blu-ray, including TV shows, stood at $13 billion). Film DVD and Blu-ray revenues fell by 13%, while box office gross rose by 10%.

The table below summarises these numbers, including the UK’s provisional box office total published last week, which the UK Film Council will confirm on Tuesday along with UK films' share of the home market.

Table 1: Selected 2009 admissions, box office revenues and national market shares

Sources: China Film Group, CNC, Cinetel, Cineuropa.org, Film New Europe, Nielsen EDI, UK Film Council, Adams Media Research.

'-' = data unavailable

Video Business closes, sneak peak UK boffo 2009, UKFC research in the spotlight

This year’s first post is something of a hodgepodge. A sudden flurry of blogworthy stories has settled like the first dusting of snow, doubtless a precursor to the blizzard of year-end box office and admissions announcements we can expect over the coming days.

I’ll begin on a sombre note, with news that Video Business ceased publication last week, as owner Reed Business Information (which also owns Variety) offloads its US business-to-business titles. Video Business has been covering the home entertainment market for nearly thirty years, charting every up and down and shake of the dice. It will be missed chiefly because home entertainment market data are not as ubiquitous as box office numbers, and informed commentary carries a premium in such circumstances (though clearly not one that pays in the long-run...).

Onto more uplifting news, and last week The Independent profiled Tim Richards, CEO of Vue Entertainment in the UK. The article makes for interesting reading, touching as it does a range of topics including the company's digital cinema plans, 3D's gathering momentum and the lack of brand awareness among multiplex visitors ("It pains me to say this," admits Richards, "but 65% to 75% of people leaving the cinema can't tell you the name of it. They can tell you about the services but not the name").

We also learn, in passing, that the UK box office totalled £1.05 billion in 2009, up 11% on 2008. That’s according to UK Film Council figures due for ‘official’ publication on 19 January. The blizzard starts here.

While on the subject of the UK Film Council, the Research & Statistics Unit has just published findings of a user survey it ran last autumn. The timing couldn’t be better, because just before Christmas the organisation was criticised by Colin McCabe for publishing statistics that ‘tend to reflect rather too well on the Council’.

In an ‘anti-New Labour polemic’ published by Prospect magazine (and reproduced in full on McCabe’s blog), the academic and former Head of the BFI Production Board calls, among other things, for the UKFC to hand over its research function to the BFI.

Yet there’s little evidence in the survey report to suggest that users consider the UKFC’s research activity to be self-serving. If anything, the 400+ users who responded to the survey are, by and large, satisfied (and in many cases very satisfied) with the RSU’s work and publications. Self-serving or not, the RSU provides a service that others value. And that is as it should be.

2009: a year in rear view

So how was it for you? As 2010 gambols into view, like a newly minted foal, it seems only polite to ask.

For my part, I’ve been wondering these last few days whether 2009 was especially significant for the film business. It’s probably too early to say, and in any case every year is one of highs and lows, winners and losers. The one just past is no different.

On the strength of available evidence, it’s probably fair to say 2009 was not a singularly momentous year for the film biz. But it did bear witness to a number of watershed moments, and the question of its lasting significance will only be answerable in years to come.

We can say with certainty that theatrical exhibition in many parts of the world has fared well in 2009, further evidence that cinemagoing can be remarkably resilient even in the teeth of a recession (a point made in a paper published by the UK Film Council back in September 2008).

What role did 3D play in all of this? There’s an interesting study to be done to find out the answer (any takers?). 2009 saw the long-heralded relaunch of 3D courtesy of the digital cinema roll out across the globe, and the extra dimension gave movie theatres an added advantage over home entertainment (which makes it my Watershed Moment #1). It’s difficult to predict how long this advantage will last (3D TVs are in development, we’re told) and it remains to be seen whether the premium ticket prices charged to 3D goggle wearers will be sustainable once the novelty wears off.

While we’re on the subject of exhibition, I must mention the Splendor Cinema blog (my Find of the Year #1), which is dedicated to the exhibition business and written by Jon Barrenchea, General Manager of the Duke of York's Picturehouse in Brighton.

With cinema cash registers ringing fulsomely throughout 2009, there’s a certain irony in the fact that the year also saw more concerted experimentation with release windows by the major studios. Exhibitors have resisted any encroachment on the theatrical window, and the studios have contented themselves by playing around with various combinations of home entertainment windows, shuffling VoD and DVD releases on certain titles (Watershed Moment #2). But as trade journalist Diane Garrett reports in her Consumed by Media blog (Find of the Year #2), it may be only a matter of time before the theatrical window comes under renewed pressure.

Online piracy continued to loom large in 2009, despite the high-profile prosecution of Pirate Bay. But faced with dwindling finance from traditional sources and a theatrical market place dominated by expensively marketed studio pictures, independent filmmakers turned in increasing numbers to the digital sphere for production funding and DIY distribution opportunities.

To paraphrase Churchill, 2009 did not mark the end of old way of making and distributing films, and it was not even the beginning of the end. But it was, perhaps, the end of the beginning (a Watershed Moment #3 of sorts; Mark Anderson, writing recently in Wired, certainly thinks so).

The global banking crisis, the explosion of social networking, audience fragmentation, digital media convergence, the rise of multi-platform story-telling, the profusion of free online content and rampant file sharing: individually and collectively they pose a challenge to the status quo, as well as untold opportunities for those less wedded to the Twentieth Century way of doing things.

So much for the bigger picture. Here’s a quick run down of my highlights from the year’s posts:

January, February and March
At the top of the year some video game suit claimed ‘video games are poised to eclipse all other forms of entertainment in the decade ahead’. According to figures published only last week, it looks like he might have a point, at least in revenue terms. But it’s patent nonsense to suggest this makes video games more popular than film, a line some hacks have been touting in recent days.

It’s not only this kind of spurious logic we need to guard against in media coverage of the film business. As LA Times columnist Patrick Goldstein reminded us in January, feature film budget numbers quoted in the media should always be taken with a pinch of salt. Or in Avatar’s case, perhaps a good handful.

The start of the year also saw the launch of a House of Lords enquiry into the British film and TV industries. The Lords Communications Committee took written and oral evidence throughout most of 2009, but there’s still no sign of their final report. Let's hope it's worth the wait.

2009 was a pleasingly fertile year for film business research sources, with the launch of several new web sites including Film New Europe in March, followed in June by Movie Review Intelligence and Marqeestars.com in September (Finds of the Year #3, #4 and #5). Be sure to check them out, if you’ve not done so already.

April, May and June
As previously noted, in 2009 it seemed we were never very far away from a piracy-related story, and in May an independent study by an academic research institute claimed to have established the size and impact of film and music piracy in the UK. Problem was the original press release included a wildly inaccurate figure, as pointed out by Ben Goldacre in the Guardian’s ‘Bad Science’ column. But that didn’t stop The Daily Mail, and others, running with the story.

In terms of the number of page views, by far the year’s most popular post concerned publication by the UK Film Council of Peter Bloore’s paper re-evaluating the independent film value chain (Find of the Year #6).

And around this time the UK Film Council also published a report into the cultural impact of UK film during the period 1946 to 2006 (the report can be downloaded as a PDF here) (a seminar was held to discuss the findings in November- presentations can be found on the UK Film Council web site).

July, August and September
July began encouragingly enough with publication by a couple of US academics of a paper about the use of film data to teach students basic business statistics.

But the big news in this period, certainly from a UK perspective, was of the proposed merger between the UK Film Council and the British Film Institute. I posted my initial thoughts on hearing the news, and was rewarded with an honourable mention in a Sight and Sound editorial. I duly renewed my subscription.

Critic and film writer Jason Solomons tried to kick off a debate about British films with his verdict that most of them are ‘crap’ (in a feature article for The Observer). Such is the lacklustre state of public discourse about film culture in this country that the article sparked nary a whimper in response. Did all of Solomons's readers simply shrug in resigned agreement? Where were the dissenting voices? Maybe he has has a point, after all.

October, November and December
Autumn greeted a new study of the European video on demand market, published by the European Audiovisual Observatory. The Observatory came up trumps again later in the year with publication of a detailed report into the Russian film business, prepared by Nevafilm and Rfilms (my Find of the Year #7)

A little late in the year, perhaps, for a silly season story, but news broke in November of a study estimating Kate Winslet’s financial value to the UK economy. We learned the actress is worth roughly £60 million to UK plc. If push comes to shove and the recession bites any deeper, I wonder how much we’d get for her on Ebay?

Better late than never, in December I finally found time to write up details of my favourite film-related infographics, an area of endeavour I plan to return to again in the coming year. There are many talented and generous people producing and freely sharing these fine works, and collectively they make my Find of the Year #8.

So there you have it, 2009 done and dusted. I look forward to welcoming you back in 2010.

New study of Video on Demand in Europe

After what feels like endless years of speculation it looks as if the long held out promise of Video on Demand (VoD) may finally be gaining some market traction (albeit still relatively modest in revenue terms), in part as a result of ‘day and date’ release experiments by certain of the major studios.

But don't take my word for it.

Here’s Variety scribe Diane Garrett writing recently in her splendid Consumed by Media blog:

‘To hedge their bets, more studios have decided to follow Warners lead and release pics simultaneously on  DVD and VOD. Sony and Universal collapsed the VOD windows for “Angels & Demons,” “The Ugly Truth,” “The Taking of Pelham 1 2 3,” “Julie & Julia” and “Bruno.” Warners will do it on “Orphan,” “Four Christmases” and “Terminator: Salvation.”

If people are going to rent rather than buy, studios vastly prefer they view movies on VOD. It’s simple economics: Studios get a bigger cut of each VOD transaction than they do with disc rentals. The shorter the VOD window, the more enticing a rental prospect that delivery platform becomes.’

In support of this shift in the business model (shift is the correct term, as it's hardly revolutionary; a shuffle of the cards rather than a whole new deck), Susanne Ault, Garrett’s Variety stablemate, quotes Sean Carey of Sony Pictures Home Entertainment:

"It's much more beneficial if the consumer buys content (instead of) renting content. That being said, we do feel that, for some titles, moving the VOD date to the same day as sell-through can grow [the business]."

Against this backdrop, the European Audiovisual Observatory (in association with the French government Directortate for Media Development) last week published a timely study charting recent developments in the European VoD market ('Video on demand and catch-up TV in Europe').

Using criteria established by the European Audiovisual Media Services Directive to determine what constitutes a VoD service, the study identified a total of 696 services operated by 366 providers at the end of December 2008. The UK had the most services in Europe (145), followed by France (106) and Italy (93) (see Figure 1). 

More than half these services were delivered via the internet (57%), 30% by Internet Protocol television (IPTV) across a DSL network, 7% on cable services, 4% by digital terrestrial television (DTT) and less than 3% by satellite. According to the press release, the study does not ‘take account of services distributed on mobile telephones […] websites devoted solely to the provision of information, trailers or adult programmes. Nor does it consider the channels set up by commercial undertakings in the context of video sharing sites such as YouTube or Dailymotion.’

Figure 1: Number of on-demand audiovisual media services in Europe by country of reception and type of network (December 2008)

Source: European Audiovisual Observatory

The press release concludes with the finding that on-demand services are provided by a variety of different players, including broadcasters, film companies, satellite and cable operators, alongside relative newcomers to content distribution in the form of telecoms operators and hardware manufacturers (of games consoles, mobile telephones and other multimedia devices).

Although the press release doesn’t go into detail, the study also looks at the prevailing VoD business models and surveys the commercial landscape within which these developments are occurring. A full content list and purchase details can be found here.

The future of home entertainment

The future of home entertainment has come under renewed speculation recently, with a flurry of conference reports and trade press coverage replete with hard data. Commentators point out we’re in a long period of transition as consumers move from transactions involving packaged media (DVD and Blu-ray) to the consumption of unboxed, digital product across a variety of platforms.

This is far from a straightforward transition because those punters with broadband connected devices in the home generally want video content on demand and for free.

Under prevailing business models this puts pressure on release windows and revenues, a pressure emanating from technological and social change rather than business imperative. 'We're in an accelerated period where technology and the consumer is outpacing the studios' current business model,' Mike Kelley, a partner at PricewaterhouseCoopers, told Alex Dobuzinskis writing for Reuters.

The attraction of unboxed content for studios is plain enough: Dobuzinskis cites higher margins and ‘the ability to collect and use information about customers’. The sticking point is one of scale: revenues from online video are projected to hit a $753 million in the North American market by 2013, according to figures quoted by Dobuzinskis. But that’s still only equivalent in size to 5% of the US DVD market circa 2008.

Truth is, there’s burgeoning demand for online video content but consumers are hitting the ‘free’ stuff in massive numbers rather than opting for paid-for product. David Mercer of Strategy Analytics, writing recently in DVD Intelligence, provides evidence of the popularity of ‘free’ online content services. The US-based Hulu.com, second only to YouTube in the free download sector, hosted 373 million streams in April 2009 according to Nielsen data. That compares with 260 million units of TV shows, movies and other video content sold worldwide for digital download in 2008, according to Strategy Analytics’s own data.

More recent data published in World Screen reveal the scale of YouTube’s dominance, with a staggering 10 billion video viewings in August alone according comScore data. From the same source: more than 161 million viewers watched an average of 157 videos per viewer during the month of August, and 82% of US Internet users watched online video last month, with the average viewer watching 9.7 hours online. The words voracious and appetite spring to mind.

But as Mercer goes on to make clear in DVD Intelligence, ‘successful business models for online video have still not been defined. Content owners and distributors are still experimenting with the appropriate mix of paid-for and advertising models.’ Consumer demand for ‘free’ content would seem to favour an advertising-based model, but this has yet to deliver significant enough revenues to satisfy most rights holders.

Jason Kramer, of research outfit Interpret, told delegates at last month’s Digital Media Pipeline conference in Los Angeles (laid on by the Entertainment Merchants Association) that nearly half (49%) of US consumers watched at least an hour a week of online video in the first quarter of 2009, compared with 32% who said the same during the first three months of 2008- further evidence that online video’s star is rising. But as previously noted, the majority of this viewing activity is directed at ad-supported free streaming sites (YouTube, Hulu etc.). ‘The studios are not really set up for ad-supported models,’ concludes Kramer. ‘There needs to be a new model’.

The experimentation David Mercer mentions is highly tentative at this stage. Put simply, the biggest players are fearful of cannibalising their existing business. Take the example of Warner Bros., who last month became the first major studio to release films on VoD before DVD with the home entertainment premiere of Observe and Report and Ghosts of Girlfriends Past via cable-operator Comcast, days before the titles were released as packaged media. This small but significant step was taken in an effort to ‘boost revenue on VoD (for which the studio gets a bigger cut of rental revenue than with DVD) without hurting DVD sales’, according to a piece in Video Business.

Understandably the studios wish to protect the DVD cash cow (and it’s hormone injected successor Blu-ray), or at least delay its demise until something lucrative enough is found to replace it. So the key question remains to what extent is unboxed content (whether free or paid-for) cannibalising legitimate packaged media transactions? It’s hard to say for certain on the basis of publicly available research, but Mercer reports findings from a survey of 3,500 people in the US and Europe that throws some light on the subject.

The research reveals that regular DVD users tend to be more active users of online video than the wider population of broadband internet users. For example, the number of broadband users claiming to download movies over the internet on a regular basis is relatively small (15% of the total) but the proportion of DVD users downloading movies is nearly twice the population average.

‘We can’t draw the conclusion that usage of DVDs will inevitably fall directly as a result of the growing number of alternative sources of video content,’ writes Mercer. ‘[But] we would expect that DVD usage will come under increasing pressure as the quality of online video and the range of available content continue to improve’.

As rights holders naturally wish to maximise their returns across revenue streams, what are the likely future prospects of paid-for unboxed content? Apple’s iTunes service demonstrates a market exists for pay-as-you-go movies and TV shows, but – once again- revenues remain small in comparison with the overall packaged media market.

During a Spotlight Presentation at the Digital Media Pipeline conference, Arash Amel of Screen Digest put Apple’s iTunes share of web-based VoD at 52% of the market, followed by Xbox Live on 31%. Screen Digest values the global web-based VoD market at $500 million in 2009, rising to $2 billion in 2013 (to put this in some perspective, DEG valued the US – not the global- home entertainment market, including VoD, at $9.73 billion in 2009, the lion share of which is down to DVD).

A quick digression, while we’re on the subject of iTunes. Scott Kirsner, writing this week in Variety, points out that Gary Hustwit’s 'Helvetica’ has generated a six-figure sum from its showing on iTunes (priced at $9.99 per download). Impressive stuff for a documentary about typography, but, as Kirsner laments, it remains an uncommon case: ‘The indie download business is still having problems gaining traction. The power of the Internet was supposed to level the playing field on which independent filmmakers and studios compete for audiences. So what happened?’. Check out the article, and Kirsner’s follow up on the Cinematech blog (An update on the State of Indie Film Online), for further analysis and case studies.

Returning to the Screen Digest data, Xbox Live’s market share is noteworthy because games consoles with online capabilities are well placed to bring VoD content onto TV screens in the home, arguably posing a bigger challenge to packaged media than PC-based viewing alone. Jennifer Netherby, writing in Video Business, reports the Xbox 360 console is happily ensconced in 16 million US households (the Playstation 3 is in 8 million and Nintendo Wii is in 20 million homes), ‘making gaming consoles the leading internet-connected device already hooked up to TVs’.

In closing, here’s one final angle to consider: what’s in store for the size of the home entertainment market as a whole (as opposed to the relative market shares of VoD and DVD)?

'I don't think that studios are looking at online to save the home entertainment business,' Stephen Prough, founder of Salem Partners, told Alex Dobuzinskis. '[B]ut I think they want to avoid what happened to the music business and try to come up with alternative modes of distribution before physical media goes away.'

Montage: Sweden H1 2009 admissions and box office; US DVD rental kiosks; Pinewood Shepperton trading report

Figures released by the Swedish Film Institute reveal strong growth in cinema admissions during the first half of 2009.

7,570,828 tickets were sold in the first six months of the year, a rise of 27% on the same period in 2008. Total box office gross also rose, up 36% to SEK 655,031,193.

It’s heartening to see that Swedish films shared 32% of the market, largely down to the success of local title The Girl with the Dragon Tattoo, which clocked over 1 million admissions. According to Thomas Bryntesson, Head of Statistics at the SFI, these figures 'show again that during a recession, cinema attendance tends to remain strong.' (quoted in Cineuropa.org).

Table 1: H1 admissions and box office gross in selected countries

Sources: Filme B, Nielsen EDI, CAA, Danish Film Institute, Cineuropa.org, Federation of Spanish Cinemas, State Administration of Radio, Film and Television, Korean Film Council, Cinetel, Bunka Tsushin, boxoffice.pl, CNC, Swedish Film Institute.
Notes: Figures have been rounded. ‘-‘ = data not yet available

Moving to home entertainment, and the latest issue of Variety provides further coverage of strained relations in Hollywood over the growth of the DVD rental kiosk business, led by Coinstar’s Redbox service. Correspondent Marcy Magiera cites a new study by NPD that forecasts the DVD-rental kiosk business (which offers overnight rentals for $1) will hold 30% of the rental market by the close of 2010 (up from 19% currently).

As Magiera notes,

‘Hollywood is clearly divided over Redbox and its rivals. There's been a flurry of litigation over the kiosks -- Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment are trying to impose a delayed window of 30 days or more on kiosk rentals, and Redbox is suing them as a result.’

These studios are concerned that cheap rentals cannibalize new DVD sales, and evidence from Rentrak does indeed reveal a slump in DVD sales in the first half of 2009 (-13.5%) compared with a rise of 8% in consumer spending on DVD and Blu-ray rentals. Still, at least these punters are actually paying for content and not (exclusively) frequenting unauthorised online sources...

Finally, Pinewood Shepperton, the UK studio and facilities group, recently issued a trading statement (Regulatory Announcement) for the period 1 January 2009 to 30 June 2009, providing a nifty vantage point from which to gauge UK production activity.

Revenues totalled £20.3 million during the first half of the year, down 6.5% from £21.7 million in the first half of 2008. Operating profit was also down, from £4.8 million in 2008 to £3.3 million, and profit before tax stood at £1.7 million.

Commenting on the results, Ivan Dunleavy, Chief Executive of Pinewood Shepperton plc, said: 

'The marginally lower year on year film revenues reflect the impact of the Screen Actors Guild dispute. The results reflect a solid performance in television and demonstrate the value of our Media Park where revenues increased. Looking forward, film revenues for the remainder of the year will depend, as ever, on the timing of new film starts in the latter part of the second half. Television revenues are expected to be stable, despite broadcasters' programming cuts. Media Park revenues should remain robust.'

While the SAG dispute played its part, film revenues were also affected by what the Announcement calls ‘wider economic pressure’, which has ‘tightened the access to film financing’. The result: ‘producers are taking longer to commence productions’.

We’ll no doubt see the continuing effects of this on the wider UK production sector when the UK Film Council publishes feature production statistics for the third quarter 2009 in October (see their statistics release calendar for details).

US DVD and Blu-ray market, H1 2009

There's more intelligence for the first half of 2009 to report, this time concerning the US home entertainment market. But first here's a related item from earlier in the week when the International Intellectual Property Alliance (IIPA), a coalition of trade associations representing U.S. copyright-based industries (video games, business software, film, TV, music and publishing), released its twelfth economic study, covering the period 2003-2007.

The report, Copyright Industries in the U.S. Economy: The 2003-2007 Report, was prepared for IIPA by Stephen Siwek of Economists Incorporated. In presenting the key findings, IIPA’s press release leads with news that the real annual growth rate of the copyright industries stood at more than twice that seen by the U.S. economy as a whole in the years 2004-2007, and that in 2007 the core copyright industries contributed 23% of the real growth achieved for the US economy as a whole. In other words, the copyright industries are a key driver of the wider economy.

The IIPA hopes these numbers, along with others in the report detailing the copyright industries’ contribution to employment and the US trade balance, will help to secure continued government support for anti-piracy measures. To this end the study was launched at an event at the US Department of Commerce, attended by Secretary of Commerce Gary Locke. 

Eric H. Smith, of the IIPA, makes the case:

“This study, like those that preceded it, strongly supports the continuing need for our government to focus its full attention on the economic and social importance of the creative industries within our 21st century economy.  Because these industries that depend on creativity and innovation contribute so significantly to economic growth and job creation in today’s economy, our government, and governments throughout the world, must redouble their efforts to provide a safer environment for them to prosper.”

Smith goes on:

“Only through the legal and secure transmission of valuable copyrighted content over the Internet can this continued growth and productivity be fully realized. Piracy threatens that growth and all governments must redouble their efforts to combat it.”   

Far be it for me to belittle this contribution to what is clearly an important and highly charged debate, but I can’t help feeling representatives of the copyright industries need to take care when making their case. After all, the report presents a slew of impressive numbers. But wasn’t this growth achieved against a backdrop of rampant piracy? Given the horror stories we’ve been fed about the scale of piracy over the years, it’s hard to imagine the problem will get any worse, especially now that authorised  online distribution channels are taking off, and illegal ones (like The Pirate Bay) are turning legit. In making the case for how vital the copyright industries are, there is surely a danger in over-selling their success.

Be that as it may, the news from one sector of the US copyright industries, rental DVD and Blu-ray, looks positive for the first half of 2009. According to data from Rentrak and reported by Marcy Magiera writing in Video Business, consumer rental revenue for DVD and Blu-ray rose 8% to $3.4 billion in the first half of the year compared with the same period in 2008. Growth was driven by consumer interest in Blu-ray and by the roll out of rental kiosks offering over night DVD rental fees for as little as $1.

Meanwhile, data released by the Digital Entertainment Group (DEG), once again reported in Video Business, shows overall US home entertainment revenues fell by 4% in the first half of 2009. There was a steep decline in DVD retail revenues (down 17% according to Video Business calculations), although this was offset to a large degree by rising Blu-ray sales (up 91%), the growth in rental activity (described above) and online distribution (up 21%).

DEG puts the US home entertainment market at $9.73 billion for the six months to the end of June 2009, which includes nearly $1 billion in digital sales and rentals (including cable and satellite VoD).

Against this backdrop, isn't it time industry reps started to bang the drum more loudly about the opportunities offered by digital channels, rather than the threats?

Montage: Spain and China box office, H1 2009; UK DVD and Blu-ray, H1 2009; digital cinema; state of the UK film industry

Spain is the first of two more territories for which box office data are now available for the first half of 2009. John Hopewell, writing in Variety, reports numbers released by the Federation of Spanish Cinemas (FECE) that show Spanish box office gross rose 13% in the first six months of 2009 over the same period in 2008, the first such rise in five years. Takings totalled Euros 296 million ($414.4 million), and cinema admissions were also up by 8%, to 48.8 million.

These are certainly encouraging figures, but as nothing compared to the growth seen in China since the start of the year. Box office there grew by 43%, to stand at $330.16 million (RMB 2.26 billion), according to figures published by the State Administration of Radio, Film and Television (SARFT). ScreenDaily.com’s coverage reports that local cinema managers and analysts predict the year-end total ‘should be between $732 million and $805 million (RMB5-5.5 billion).’

Now for news closer to home. Earlier this month the British Video Association (BVA) released home entertainment figures based on data from the Official Charts Company, which reveal that over 3 million Blu-ray Discs have sold in the first half of 2009, a rise of 231% on the same period last year.

The BVA’s press release quotes Hannah Conduct, BVA Marketing Manager, as saying:

“There are now almost 1500 Blu-ray releases in the market covering a breadth of titles […] Older releases such as Trainspotting (4DVD), Bladerunner (Warner Home Video) and The Day the Earth Stood Still (20th Century Fox Home Entertainment), have all experienced sales success on this exciting format, years after their initial DVD release.  Many more Blu-ray titles are anticipated in the latter part of this year so consumers will have plenty of opportunities to add to their home entertainment collections.”

The BVA points to evidence that the shift to Blu-ray may be displacing DVD sales, which recorded a fall of 9.5% year-on-year (I assume this is the decline in unit sales numbers rather than sales value).

Other, less positive, factors are also felt to have played a role. Lavinia Carey, BVA Director General, is quoted as saying:

“The home entertainment industry has weathered the recession extremely well during the last year but, sadly, with the loss of around 900 high street stores at the start of the year, following the demise of Woolworths and Zavvi, the sales generated from impulse purchases have been hit.  This changing retail landscape has had a huge impact on our half year result. We hope as the year progresses that new retailers will fill the gap by stocking home entertainment products to give consumers a wider choice.”

Turning from home entertainment to exhibition, the good folks at Dodona Research have recently launched a report into digital cinema roll out across the globe, and Digitalcinemainfo.com offers the following taster:

Dodona say there are currently close to 12,000 screens converted to digital projection worldwide, with 5,000 of these 3D enabled, numbers which will rise to 18,000 and 10,000 respectively by the end of this year – in time for the release of James Cameron’s Avatar. Further out, Dodona see scope for the number of 3D screens to continue to climb over the next few years, perhaps representing 20% of the 110,000 cinema screens worldwide by 2012. But beyond this the company is more sceptical, pointing to the fact that a wholesale shift to 3D on the part of the film production industry seems unlikely in such a short timescale, and to the apparent absence of an alternative driver of conversion.

The full report, Digital Cinema Briefing, is available to purchase direct from Dodona.

And finally, a piece by Vanessa Thorpe caught my attention in yesterday’s Observer. Headlined ‘Why the British film revival is in danger of being killed off’, the article rakes over the smoldering embers of the debate about the state of the British film industry, which usually flares up around Oscar-time, Cannes or whenever somebody in officialdom casts their eye over public policy for film.

Thus, taking her cue from the ongoing Lords Communications Committee enquiry into British film and TV, Thorpe runs through various bits of contradictory evidence of awards and box office success on the one hand, and a local production sector that some claim is in ‘terminal decline’.

Perhaps unsurprisingly the piece is short on any definitive remedies, but this is in part due to the lack of a clear diagnosis of the problem. If nothing else, the article confirms that if you ask half a dozen industry luminaries what they make of the current situation you’re likely to get as many different answers in reply. Tim Bevan, co-founder of Working Title and soon-to-be ensconced as Chair of the UK Film Council, identified piracy as the key threat in his evidence to the Lords committee, whereas producer Andrew Eaton (formerly Deputy Chair of the UK Film Council), sees this as "a bit of a smokescreen".

Instead, he and screenwriter Jonathan Gems seem to share the view that we “are in thrall to the American industry”, and this is the seat of the problem. What’s needed, according to Eaton, is a “discussion about how you make the economy of the British film industry work.”

Gems goes further, offering the view that while we have plenty of talent in this country, 

“our industry is just an adjunct of the American film industry. Hollywood dominates. Of course, at the moment Hollywood has the best overall product, but we invented cinema in many respects and yet we don't have our own cinema."

His solution? Convince the European Commission to pass legislation imposing a quota on the proportion of films shown in European cinemas that are made in Europe (50% is the figure quoted). "Then we would get our own industry pretty quickly," Gems says- although quite how this will deliver a more robust British industry remains unclear.

The debate, as framed in this way, is hamstrung both by the lack of a coherent vision of what’s happening on the ground (and it is a complicated picture- there is no single, homogeneous industry), and consensus about what the key issues are. How do you measure the strength and vitality of the film industry (especially given its heterogeneity)? Which indicators might we turn to, and how should we interpret them?

Big questions, indeed. We’ll have to wait until later this year to see whether the Lords Communications Committee can shed any light on the matter. In the meantime we can at least look forward to publication of the Q2 UK production statistics by the UK Film Council’s Research & Statistics Unit (due to appear this Thursday).

Montage: Home entertainment market; Film in Turkey; Spanish film sales; Bradford city of film

Here’s a selection of blog-worthy items culled from the news media over the last couple of weeks:

Writing in The Financial Times, Matthew Garrahan reports new data from Screen Digest that show a decline in global home entertainment sales, which fell by more than $2.6 billion in 2008. Total revenues from DVD and Blu-ray rentals and sales stood at $26.4 billion in 2008. Revenues from DVD (which accounted for two-thirds of the total) fell by 4.8%.

Although sales of Blu-ray media saw a fourfold increase to $482m last year, the format has not seen nearly enough growth to counteract the decline in DVD sales.

Helen Davis Jayalath, senior analyst at Screen Digest, told the FT, “we expect Blu-ray to account for 6.9% of international video spending this year – assuming there is strong promotional activity [by the studios]. However, despite consumers’ interest in the high-definition format and demand for packaged media, the current challenging economic climate means that we don’t expect Blu-ray to be driving even minimal sector growth until 2010.”

Staying with the FT, Pelin Turgut has contributed an interesting piece on the state of play in the Turkish film business, where production levels have risen from 17 films in 2004 to 70 last year. Total box office gross stood at $225 million in 2008, and Turkish films had a market share of 60%, up from 12% in 2004, despite accounting for only 18% of all releases. Turgut quotes Adnan Akdemir, chief executive of AFM Cinemas, Turkey’s largest exhibitor, who notes that international sales are thriving and can expect further growth in countries outside Europe:

“Turkey’s export market isn’t Europe. On a mass scale, my expectation is that the next step is to start exporting films to countries with similar cultural backgrounds, like parts of the Balkans, Central Asia, Russia and the Middle East. Not India, nor Italy. The stories, the background, the way movies look – these need to be culturally applicable.”

While on this subject, figures released by FAPAE, the Spanish Federation of Audiovisual Producers, reveal the strength of Spanish film sales internationally. Sergio Ríos Pérez, writing for Cineuropa.net, reports 72 Spanish productions and co-productions were released in 17 foreign territories in 2008, generating a combined box office gross of €132 million. The most widely distributed title was The Orphanage (in 19 countries), followed by [REC] (14) and Vicky Cristina Barcelona (9).

Overall, Spanish films performed best in France, with box office gross totalling €61.15 million, followed by the US and Canada (€18.92 million), Germany (€13.73 million) and Mexico (€13.57 million).

...And finally, I can’t finish without congratulating Bradford for becoming the first ever UNESCO City of Film. By 'eck!

Piracy: latest research

Last week’s publication of a report for the Strategic Advisory Board for Intellectual Property Policy (SABIP) sheds further light on unauthorised downloading activity in the UK (Copycats? Digital Consumers in the on-line age).

But before launching into the key findings, it’s worth taking a moment to consider the provenance and methodology of the research. The study was undertaken by University College London’s CIBER team, which operates independently of the creative industries. This means their assessment of the scale and nature of unauthorised online distribution is impartial- a valuable trait in this highly charged and controversial area.

Furthermore, SABIP, who commissioned the research, is a Non-Departmental Public Body sponsored by the government’s Intellectual Property Office. It advises Ministers and the Intellectual Property Office Chief Executive on the development of intellectual property policy. In other words, SABIP carries some clout in policy terms.

In terms of methods, the research involved a review of exiting literature (mainly primary research carried out by other academics, in the UK and internationally); selected interviews with ‘major stakeholders, regulatory bodies and industry experts’; analysis of media reports on the subject of ‘digital consumers’ in the period January to April 2009; and original fieldwork in the form of ‘an empirical exploration of the phenomenon of online downloading’ (i.e. ‘we went online and found out just how easy it is to “file share”).

So the balance of evidence comes from non-industry sources, although a lot of the large numbers quoted at the start of the report (and which found prominence in subsequent news reports) are from existing industry research (for example, the estimate that at least seven million people have downloaded unauthorised material in the UK). I’m not suggesting industry-derived data are suspect (far from it); but it is helpful, given the nature of the public debate, to draw upon independent evidence (or independently verified evidence) wherever possible.

Which is why the CIBER report is all the more valuable. And from an industry perspective (by industry, we’re talking about commercial music, film and TV businesses, and other IP rights holders including computer software publishers), the research lends weight to the view that piracy is a significant problem. Thus, the authors indulge in a back-of-the-Nicorette packet calculation and estimate that the online members of just one file sharing network consume approximately £12 billion worth of content annually for free. ‘These figures are staggering’, they conclude, and it's hard to disagree.

The CIBER team helpfully present their key findings using a rating scale, where one star means there is little evidence and five stars offer very strong, almost incontrovertible, evidence. In order of strength, here is what the current research literature tells us:

Very strong evidence (CIBER confidence rating: *****):

• ‘There are myriad choices when consuming content and consumers are confused about what is legal and not legal’;
• ‘Attitudes and behaviours towards property in the online and physical worlds are very different’;
• ‘It has never, ever been easier to break the law’;
• ‘Internet service providers and the consumer electronics industry: two elephants in the room’ (in other words, both ISPs and consumer electronics businesses are involuntarily complicit in unauthorised sharing, and they should therefore form part of the solution);

Strong, but not conclusive evidence (CIBER confidence rating: ****):

• ‘The scale of the "problem" is huge and growing’
• ‘There is a powerful idea that there is “no victim”, and so “no crime”’
• ‘Education isn’t working, yet’

The evidence base is somewhat inconclusive and contradictory here (CIBER confidence rating: ***)

• ‘There are fewer cues to guide behaviour in the online world’

In conclusion the authors call for further research, not least to address the ‘fundamental question’, which is not ‘how or why the downloading, copying and dissemination of unauthorised content takes place’, but ‘who does it, (and therefore, who doesn’t), and can this behaviour be changed?’. SABIP is in clear agreement. Dame Lynne Brindley, SABIP Board member, said at the time the research was published: ‘This report gives us some baseline evidence from which we can develop a clear research strategy to support policy development in this fast moving area.’

So we can expect more from CIBER in the near future. But as it is a fast moving area, will the research effort be able to keep pace?

Oz box office, admissions and home entertainment update, 2008

Shifting focus from New Zealand, subject of my previous post, to Australia, where Screen Australia has just updated its Get The Picture (GTP) research site.

I posted in January that Australia saw its total box office gross rise 6% in 2008, to an all time high of AUS$946 million ($662.2 million), based on preliminary figures published by the Motion Picture Distributors Association of Australia. GTP confirms this annual total stood at AUS$945.4 million for the year, the highest total on record (unadjusted for inflation: data go back to 1976).

However, cinema admissions fell by 1.2% in 2008, to 84.6 million. The average ticket price stood at AUS$11.17, up from AUS$10.57 in 2007.

Unlike the situation in the UK, 2008 saw a fall in the number of titles released in the cinema. A total of 301 films secured release, down from 317 in 2007, making it the lowest total since 2003. Of these, 52% were from the US and 11% were Australian (up from 8% in 2007).

The top ten boffo performers are listed in Table 1. Baz Luhrman’s Australia was the top grossing local film in 2008, taking AUS$26,915,773. Despite this success, Australian-produced films earned AUS$35.5 million of the total Australian box office in 2008, a market share of 3.8% (down from 4% in 2007, and below the 10-year average of 4.4%).

Table 1: Top ten films by box office gross, 2008
On the exhibition side, there were 1,980 active cinema screens in 493 theatres in 2008, with 54 digital projectors operating (double the number in 2006).

In terms of the retail home entertainment market, the value of DVD and Blu-ray sales rose in 2008, totalling AUS$1,306.6 million (DVD= AUS$ 1,280.6, Blu-ray= AUS$26.0). The low volume of VHS sales means the format has finally bitten the dust in the data record. RIP.

US home entertainment revenues, Q1 2009

According to a report in Home Media Magazine, data provider Digital Entertainment Group (DEG) estimates consumer spending on DVD, Blu-ray and content through digital distribution channels totalled $5.3 billion in the first quarter of 2009. This result is better than anticipated in view of the economic downturn, and marks a fall of just 5% on 2008's first quarter total.

Blu-ray discs remain a small part of the overall picture, but spending grew to $230 million in the first three months of the year. Digital distribution also saw growth, with consumer spending hitting $487 million in Q1 2009, up 19% on the same period in 2008.

Feeling the digital heat

The last few weeks have seen a flurry of news stories and events linked by a common theme: the opportunities and threats posed to the film business by digital technology.

Let’s deal with the threats first. For starters, a court in Sweden found those involved in Pirate Bay guilty of breaching copyright laws. That same week, figures released by Italy’s Federazione Anti-Pirateria Audiovisiva (FAPAV) put the annual loss to the local cinema industry at around $699m (Euros 530m). The research, conducted by IPSOS, estimated the number of Italian jobs at risk due to piracy to be around 250,000.

According to the study, just under one third (32%) of Italians (around 16 million) have used illegal copies of films over the past twelve months. These figures include all types of pirate activity but, significantly, online/digital film theft (e.g. illegal downloading and file sharing) accounted for 21% of illegal activity.

Closer to home, last week I attended an event in London hosted by the Film Theft Task Force entitled Digital Heat. The gathering provided a forum for the content and distribution sectors of the industry to consider ‘how digital technologies can be turned into legitimate business for the UK film and TV industries’.

The discussion hinged around the question of how best to capitalise on the opportunities presented by digital distribution while managing the attendant risks. A short AV presentation kicked off proceedings with some indicative data:

Opportunities…
• 67% of UK households had access to broadband in 2008
• 23.5 million people use the internet every day
• 16-24 use it most (77% every day)
• 20.2 million people have used a legitimate online content service - doubling use since 2007
• Most (96%) used free streaming sites

Threats…
• Annual loss to the UK audio visual industries from film theft is estimated to run at around £500 million
• 62% of people who use illegal online services would think twice if they faced suspension by their ISP
• 66% of adult file sharers would stop accessing illegal content if they thought they had a greater chance of being caught

The AV was merely a warm-up act for the main billing: a panel discussion chaired by Michael Gubbins (former editor of Screen International) and featuring Stephen Garrett (Joint MD Kudos Film and Television), Andrew Keyte (CEO FilmFlex Movies), Simon Morris (co-founder and Marketing Director, LoveFilm), Jonathan Lewis (Head of Digital Media at Five TV) and Steve Purdham (CEO, We 7).

I can’t possibly do justice to what turned out to be a highly informative and entertaining debate, but the discussion boiled down as follows:

1. We’re living in a digitally converged age- it’s no longer just around the corner, it’s a reality and it’s time to face up to the fact.
2. The vast scale of online film theft demonstrates one simple truth: there is huge demand for accessible, good quality audio visual content. The legitimate business has so far failed to meet this demand, and file sharing and other forms of film theft are flourishing.
3. Whatever business models are developed to tap this latent demand, they must satisfy three criteria: 

• Online content is very price sensitive (the pirates are offering the stuff for free!)- so download to own or rent, or streaming services, must be offered at very competitive rates, or free to the user (funded by advertising, sponsorship etc.).
• Consumers want content whenever and wherever they can get it: release windows and DRM create barriers and must be scrapped.
• Consumers will switch to legitimate platforms provided they get a good service (something the file sharers cannot provide, or have no interest in providing). That means reliable delivery, high quality product and a user interface that makes purchasing or consuming as straightforward as possible.

There was broad agreement across the panel for points 1 and 2, but less consensus about the solution outlined in point 3.

Steve Purdham was the most vocal advocate of the new approach. His company offers users free music through a streaming and download service supported by advertising (although Purdham is bankrolling the service at present, as he builds the subscriber base). Users have to listen to an advertisement ‘grafted’ onto the start of the free stream, and then they are offered the option of buying the track to download.

Purdham is confident that advertising-led services can flourish, and he made a convincing case for the potential of such a model. By asking users to register for the free service, the door is opened to selling and marketing to them in more conventional ways. Peer-to-peer transactions are anonymous, but there’s an opportunity for legitimate business to build a marketing database on a global scale.

Yet as Stephen Garrett noted, this model may work well for music but the cost of making top quality TV or film content is too high to be carried by advertising-based models alone. He described the situation in the indie TV sector, where companies like Kudos finance production on the strength of future income- and that includes the lucrative DVD and pay-TV markets. The big question is whether online revenues will ever provide the sort of income stream offered by existing ancillaries.

But the matter need not, of course, boil down to an ‘either / or’ option. Looking around at the legitimate online services currently being offered, there are encouraging signs of a mixed economy of services developing. For example, Danny King, writing last week in Video Business, reports growth in Netflix’s first-quarter profit and subscriber numbers. Netflix straddles the physical, packaged media market (DVD rental by post) and has moved into online distribution with its streaming service.

The company saw net income rise by 68% to $22.4 million, as sales rose 21% to $394.1 million. The Netflix subscriber base grew by 920,000 during the quarter, up 25% from a year earlier to 10.31 million, making it the biggest movie-rental service via mail company in the US.

Netflix’s video-streaming service now has 11.5 million customers, and it appears to be augmenting, rather than cannibalising, the existing DVD business: “While it’s clear that instantly streaming movies … is energizing our growth, our subscribers in total are renting more DVDs and Blu-ray movies than ever,” Reed Hastings, CEO, said. The company anticipates the DVD market will peak between 2013 and 2018, but has ruled out a streaming-only subscription option anytime soon.

New online movie services, like iReel.com in the US, are developing all the time, while existing ones are jazzing up their consumer offer. For example, Amazon.com announced last week it plans to launch HD (high-definition video) content to its on-demand service.  "Our customers have been asking us for two things: HD and the ability to watch movies and TV shows instantly on their television," said Bill Carr, Amazon vice president of music and video.

But for all this activity, there is still no single destination offering the breadth of content, viewing flexibility and the value for money demanded by consumers- a point taken up by LA Times columnist Patrick Goldstein in his The Big Picture blog.

‘Why has Hollywood been so slow to put its movies and TV shows online?’ Goldstein asks. Quoting technology columnist Farhad Manjoo, he offers a plausible explanation, citing lessons to be learned from the pirates:

As Manjoo confesses: "I would gladly pay a hefty monthly fee for [a download service] -- if someone would take my money. In reality, I pay nothing because no company sells such a plan. Instead, I've been getting my programming from the friendly BitTorrent peer-to-peer network. Pirates aren't popular these days, but let's give them this -- they know how to put together a killer on-demand entertainment system."

Neither Netflix, iTunes or any of the other legitimate services offer anything like the variety and accessibility of peer-to-peer networks for one obvious reason: they are hamstrung by ‘a "byzantine set of contractual relationships" among studios, distributors, cable channels and a variety of other parties.’

The studios won't release movies online day and date with their theatrical release, fearing the availability will cannibalize their performance in the theaters, not to mention enraging theater owners. After movies arrive on DVD, they are also becoming available on pay-per-view, then a few months later they go to premium, HBO-style pay-cable channels, which get a 15- to 18-month exclusive window in which to show the film. As Manjoo explains: "That's why you can't get older titles through Apple's rental plan -- once the movie goes to HBO, Apple loses the right to rent it."

Movies then "make a tour" of ad-supported cable and broadcast networks before returning to outlets like Starz for a second run. Only years after its initial release, when a film enters its "library" phase, are companies like Netflix allowed to license it for streaming. There's a growing generation of consumers eager to see studios shorten or do away with all these windows, but the studios are in no rush -- they say these deals are worth billions, so why sacrifice built-in profits for an uncertain future?

Goldstein concludes with a warning: if the business fights to protect its existing revenue streams it risks continuing to lose out to the pirates. Consumers will go where the content is- and unless legitimate alternatives are offered in double quick time, a golden opportunity to grow the business in news ways may be missed:

You have to wonder if by the time Hollywood makes movies easily available online, the dogs will have barked and the caravan will have moved on. In other words, it might be too late.

Digital copy: adding value to DVDs

Writing in last week’s Video Business, Jennifer Netherby reports a US study by the National Consumers League that found the majority of consumers expect DVDs they buy to include a digital copy, which can be saved to a computer. The NCL has been looking into consumer attitudes towards Digital Rights Management (DRM), and the survey adds weight to arguments for loosening restrictions on backing up legal purchases.

The research was conducted by Opinion Research Corporation and involved 1,000 consumers aged 18 to 64. Among the other findings, over half of those surveyed (55%) said they purchased fewer DVDs last year, while two fifths (41%) expect to buy even fewer over the coming year.

That’s an obvious cause for concern for the business, but there is evidence that the inclusion of a digital copy on DVDs may entice consumer to buy more. Two fifths (40%) of the sample said the ability to backup DVDs might convince them to purchase more discs in future.

The survey found that despite overwhelming demand for the option to make a back-up copy of purchased movies, few have actually done so to date. But that could well change as the technology develops and people warm to the idea of uploading their movie collection to portable devices like iPods and the like.

“Consumers’ attitudes towards saving content have been shaped by their ability to freely copy the contents of their CD collections to their computers and iPods”, said National Consumers League Executive Director Sally Greenberg of the findings. “Our survey shows that they are eager to have that same ability with their DVDs and are frustrated that the market has not adapted to meet that desire.”

Will this help preserve the DVD (and packaged media in general) from the onslaught of downloading and streaming content? It's hard to imagine why anyone would want to buy a DVD just so they can store it on their PC when they have the option of downloading it in the first place. But with the studios keen to extend the life of packaged media for as long as possible, perhaps digital copy is the way ahead- for the time being at least.

The full report (in PDF) can be downloaded here.

Montage: French film production in 2008; PEVE Digital Entertainment conference; MPAA research 2008

Two items of interest emerged from Paris in the last couple of weeks, beginning with publication by the Centre National de la Cinématographie (CNC) of data showing the strength and vitality of French film production in 2008.

Both the level of production and total production investment rose for the second year running, with the number of films made totalling 240 (up from 228 in 2007), backed by investment of 1.49 billion euros (1.22 billion euros from French sources, an increase of 29% on 2007).

According to a report in Variety, the economic slump had not taken effect by the time most 2008 movies went into production, and historically French film production has proved relatively resilient during financial downturns. Patrick Lamassoure, Film France managing director, is quoted as saying:
"The French production system isn't based on equity. Money doesn't come from banks; it comes principally from TV stations, CNC subsidy coin and minimum guarantees from domestic distributors.”

Last week also saw Paris play host to the annual Screen Digest PEVE Digital Entertainment conference. According to the press release, ‘the home entertainment industry has much to be optimistic about’, despite the economic downturn.

This upbeat assessment is based on facts and figures presented over the two days of the conference, which included a keynote address by David Bishop, President of Sony Pictures Home Entertainment, who noted that home entertainment is a $50bn-a-year business that 'continues to be a critical revenue  stream for our parent companies' and that ‘consumers are still buying packaged media in significant numbers'. 

Screen Digest's Dan Cryan told delegates the biggest challenge they face is in persuading consumers to pay for content that is currently available for free. Piracy is not the only competition according to data presented by Cryan: by 2011, ‘ad-funded, free to view TV shows will account for 10 times more US consumption than paid-for online content. Both pricing and windowing strategies must be rethought...if paid-for content is to compete with free’.

Further details of what sounds like a really fascinating event can be found here.

Finally, Pamela McClintock, writing in Variety earlier in the week, offers some interesting speculation as to why the MPAA’s annual theatrical market data publication has not yet surfaced.

‘So far’, she reports, ‘the 2008 report is missing in action despite the fact that it was a record-breaking year at both the domestic and international box office.’

McClintock suspects the MPAA ‘doesn't want to publicly tout the health of the box office during the economic crisis. Nor does [Dan Glickman, MPAA Chair and CEO] want to give Washington politicos ammunition. In January, Sen. Tom Coburn (R-Okla.) blasted a provision in the stimulus package that would have provided $246 million in tax breaks for studios and filmmakers. Coburn's argument: Why should Hollywood get a handout when the box office is going gangbusters?’

But according to McClintock we won’t have to wait for much longer. The MPAA has confirmed the report is due for publication online following Glickman's appearance at the ShoWest event next Tuesday.

(Now, far be it for me to indulge in my own conspiracy theories, but I note that ShoWest is run by the Nielsen Film Group, part of the Nielsen Company that also owns The Hollywood Reporter, a rival to  Variety...is that what stoked McClintock's interest?).

Future prospects for DVD and Blu-ray

A number of stories broke last week that offer some interesting insights into the changing dynamics of the home entertainment business, which has long been the film industry cash-cow. But the market appears to be faltering (on both sides of the Atlantic) and a growing number of indicators suggest that in the long-term, the days are numbered for what’s known quaintly in the business as ‘packaged media’.

First up, consultants SNL Kagan forecast strong growth of Blu-ray within the next four years before tailing off as video-on-demand over the internet takes off.

According to SNL Kagan, Blu-ray player sales in the US will triple in 2009 to $765 million, peaking at $6.86 billion by 2013 before dropping below $3 billion the following year as the market reaches maturity.

Consumer spending on Blu-ray discs will surpass the billion-dollar mark this year, and disc sales are expected to hit $10 billion by 2013 (matching standard-definition DVD market share).

Thereafter, however, uptake of video-on-demand services will continue to grow so that by 2017 around 99 million US homes will have a high-speed Internet service, compared with 115 million homes with high-definition disc players.

Here’s what the SNL Kagan press release had to say:

“Blu-ray will be the driving force behind the video retail market throughout the next decade,” said Wade Holden, analyst at SNL Kagan. “The current economic climate, however, will slow the growth of this new format and likely keep it from reaching the heights that it may have in better times. VOD services will continue to improve in both technology and content over the next decade and begin to draw consumers away from Blu-ray and DVD by 2017.”

Meanwhile, Jennifer Netherby, writing last week in Video Business, reports that Universal Studios Home Entertainment, Summit Entertainment and 20th Century Fox Home Entertainment are joining other studios in ‘shutting the window between DVD and video-on-demand as DVD sales weaken and more consumers warm to the idea of on-demand movies.’ Warner Home Video remains the only studio putting most of its titles out day-and-date, a strategy it admits helps VOD and retail sales but can adversely affect physical media rentals.

US DVD market 2008

US DVD market data released a couple of weeks ago paints a dispiriting picture of the home entertainment sector in general decline.

Writing in The Hollywood Reporter, Georg Szalai reports figures released by Digital Entertainment Group that show consumer spending on DVD fell for the second consecutive year, by 5.5% to $22.4 billion (these numbers are on a par with equivalent data published by Video Business, which show consumer spending on rentals and purchases of DVD and Blu-ray Discs fell by 5.7% to $21.7 billion).

According to DEG’s press release:

‘While US DVD sales were off by 9 percent at $14.5 billion, rental transactions (including kiosks) were flat at $7.5 billion. The growth in Blu-ray helped offset the maturing DVD market bringing the overall category to a single digit drop of 5.5 percent in total consumer spending.’

Using data sources from Adams Media Research, which put consumer spending on digital rentals and purchases of films and TV shows over the Internet at $488 million (up 73% of 2007), Video Business estimates that home entertainment consumer spending including downloads and cable VoD fell by 3.5% from the previous year.

Estimates vary as to the size of the Blu-ray market in 2008. Video Business quotes studio estimates at around the $750 million mark, whereas Adams Media Research put the total at $901 million, including $270 million in rental income.

And the outlook? According to Video Business, ‘the general consensus is that 2009 will be a transition year, with another single-digit percentage setback in DVD/Blu-ray spending. Studio chiefs are cautiously optimistic that the industry should rebound to growth in 2010’.

We’ll see.

One entertainment medium to rule them all? Video games and movies

The recent flurry of posts about year-end box office and admissions has left me suffering from a mild case of integer indigestion (or ‘integestion’ as it’s known among professional statisticians, 42.24% of whom have suffered from the condition at some point in their career).

So in remedy here’s a post that’s mercifully free of numbers of any kind. Well almost.

Last week a story issuing from the Consumer Electronics Show in Las Vegas caught my eye. Mike Griffith, boss of games company Activision, gave a speech claiming that video games are set to dominate the entertainment market.

‘Movies, recorded music and TV - these are all stagnating or contracting entertainment sectors’, he informed the gathering. In contrast, Griffith noted the video game business grew by 40% between 2003 and 2007. His conclusion? ‘Video games are poised to eclipse all other forms of entertainment in the decade ahead’.

I don’t know whether Griffith had his tongue firmly lodged in his cheek when he made this bold claim, but it sounds like wishful thinking to me. I don’t have access to up to date numbers on the size of the games market in the US or worldwide, but a quick hunt around the Internet yielded some relevant data from PricewaterhouseCoopers’ report ‘Global Entertainment and Media Outlook: 2008-2012’.

According to figures quoted on the website, the games market in the US is led by consoles and handheld platforms, and software sales are forecast to increase ‘at a compound annual rate of 6.3 percent to $11.7 billion in 2012 from $8.6 billion in 2007.’ (This doesn't include PC game software sales).

That's impressive growth, but the market still falls well short of the revenues generated by filmed entertainment, which includes box office receipts, home DVD/video (rental and retail) and online rental and streaming revenues (but not film-on-TV revenues). PwC data reproduced in the UK Film Council’s Yearbook 2008 puts filmed entertainment revenues at $35.5 billion in the US in 2007 ($85.9 billion worldwide). By 2012 it is forecast to be $44.5 billion (and $111 billion worldwide).

I realise these are imprecise comparators, but the point still stands. Film generates seriously large amounts of money across the value chain, dwarfing the burgeoning video game market.

By happy coincidence I’m reading Kristin Thompson’s fascinating account of the Lord of the Rings phenomenon (‘The Frodo Franchise’), which takes the Peter Jackson movies as its starting point and  recounts the various ways money has been successfully wrung out of the franchise.

The book comes very highly recommended to anyone with an interest in the way modern Hollywood operates, and I plan to do future posts picking up some of Thompson’s themes. But for now let me quote a few passages from the chapter on licensed film-based games (chapter 8).

In opening the chapter, Thompson reminds us that stories about the video games industry transcending the film business have been knocking around for several years. Nonetheless, ‘the game industry has not grown more lucrative than Hollywood filmmaking’ (p. 225).

Thompson reports a number of statistics comparing the relative size of each industry, before concluding that ‘the game sector of the entertainment business is growing, and no doubt [...] the two industries are struggling for the leisure time of an expanding population of gamers.’ (p. 226)

‘All the same’, she continues,  ‘film and game companies have many reasons to cooperate. They are becoming more dependent on each other. They often are partners within the same franchises, with the films promoting the games, and the games promoting the films. They also depend on much of the same technology, and some personnel move freely between the two industries. “Convergence” has become the buzzword for describing the course of the two industries.’ (p. 226).

This strikes me as an altogether more clear-headed and realistic assessment than the one pedalled at CES by Griffith, and more in tune with Sony Chairman and CEO Howard Stringer's verdict on the blurring  between entertainment and consumer electronics: 'We must accept this fusion is a reality' (as reported by Andrew Wallenstein in The Hollywood Reporter, 01.01.09).

US home entertainment market: a year in review

With the closing bars of Auld Lang Syne fading once more into bleary memory, along with wistful recognition of another year gone by, we can take cheer from the fact that around this time of year there’s an outpouring of information about what the previous twelve months have served up.

A great example appears in the latest edition of Home Media Magazine (28 December- 4 January), available for free as an e-publication.

Erik Gruenwedel and Chris Tribbey provide a staggeringly detailed account of the highs and lows of the year in home entertainment, one month at a time. They recount the key events in an extraordinary year (for all the right and wrong reasons), including who bought out whom, what flopped (HD DVD, consigned to history back in February) and what flew (Warner’s The Dark Knight shattered records shifting 13.5 million units worldwide in December).

Scanning the past twelve months in this way highlights the daunting speed with which things changed as the economy soured. Thus in February Lionsgate confidently projected DVD sales for the year would be up 6% on 2007. By November the mini-major had released 17 employees (8% of its workforce), despite strong home entertainment sales.

And there was plenty of scope for hubris in 2008. In March, shares in Netflix reached record highs ‘after analysts say the online DVD rental pioneer was too cautious in fiscal projections’. Not cautious enough as it happens: a month later (April), shares in the company nosedived after it lowered full year earnings ‘due to costs associated with offering free streaming to subscribers’. 

The year also saw the first flowering of the enormous potential of legitimate digital downloads. In May, Apple’s iTunes began offering movie downloads to purchase on the same day as DVDs. By June Apple announced that its customers were downloading around 50,000 movies a day on iTunes. And in July, Bob Iger, Disney president and CEO, informed analysts his company had sold 5 million movie downloads on iTunes since 2006. The competition started heating up in November when Sonic Solutions bought movie download service CinemaNow, with its 6,000 title catalogue.

Best of all, Rentrak Corp., the box office tracking company, announced in July it was working with studios to track streamed and downloaded content. Which means better quality data about Internet revenues should be available through the company’s Digital Download Essentials service.

2008 was also the year Blu-ray finally began to take off (after laying its rival format to rest). In October, Paramount’s Iron Man sold 7.2 million DVDs in its first week, and more than 500,000 Blu-ray units. In one day alone it shifted 260,000 Blu-ray units, a record for the format. And in December, NPD Group reported that 147,000 standalone Blu-ray players were sold in the US during the week after Thanksgiving.