Blu-ray Movie Adoption Tracking ‘Slightly Below’ DVD’s, Nielsen Says

LOS ANGELES -- Blu-ray Disc adoption four years after introduction is tracking “slightly below” where DVD was after the same period, Billy Law, Nielsen director of home entertainment measurement, told the Entertainment Supply Chain Academy’s Edge Conference on Thursday. Still, Blu-ray “remains promising,” and its title-by-title sales share is increasing relative to DVD’s, Law said.

Blu-ray Disc unit sales grew steadily in 2009, but not enough to offset DVD’s sales decline, Law said. As a result, total packaged disc sales fell 9 percent last year, the third straight year of declines, he said. The trend has continued somewhat into early 2010, he said. In Q1, packaged disc sales were down year-to-year, but March was stronger than the same month a year earlier, he said.

Through Q1 this year, 7.8 percent of homes had bought a Blu-ray movie, compared with 9.1 percent that had bought a DVD four years after that format was introduced, Law said. That Blu-ray has had to endure the worst recession in decades and still is tracking so closely behind DVD is actually “an encouraging sign for the industry,” he said. Moreover, Blu-ray’s share of sales versus DVD for both “day-and-date” and “library” titles is “increasing steadily,” though its share “varies widely” from title to title, he said.

More consumers are buying Blu-ray discs at Wal-Mart today than at any other retailer, Law said. But for retailers across the board, DVD and Blu-ray buyers “continue to be very valuable shoppers to retailers” compared with the average shopper, he said. That’s because homes that buy movies on discs tend to spend twice as much at retail as those that don’t, he said.

Nielsen sees a “slight recovery” in consumer spending this year -- though with unemployment high and consumer confidence low, it’s forecasting any growth to “remain restrained,” Law said. During the recession, “discretionary outlets are where consumers have cut back spending the most,” and DVD and Blu-ray “have not been immune,” he said. Nielsen surveyed “active disc buyers” last year and found 43 percent bought fewer movies on disc than the year before and only 15 percent bought more, he said. “Economic pressure” was at play in the reduced buying, but so was “a shift toward rental alternatives,” he said. For example, 19 percent who said they bought fewer discs said they rented more from subscription services like Netflix, he said. The trend has continued into 2010, he said.

Redbox is seeking a digital delivery business model that will “fit our brand” for value and convenience, President Mitch Lowe told the conference. Customers have told the company they want “a wider variety of titles” from which to choose, and kiosks “don’t have the capacity” to accommodate that, he said. Redbox is sticking to its plan not to talk about digital delivery until October, he said.

When Redbox launches Blu-ray kiosk rentals, it will do so at a “premium” price that’s higher than its basic $1-per-night DVD rentals, Lowe said. Redbox is testing Blu-ray rentals at $1.50 and $1.75 a night and at $2 for the first night and $1 for the second, he said. It’s likely Redbox will settle on a Blu-ray rental price that’s “at least” $1.50 a night, he said. When Redbox launches Blu-ray rentals, “we hope that'll persuade a lot of people who are on the fence to buy Blu-ray players,” he said. In February, 17 percent of customers Redbox surveyed said they owned standalone Blu-ray players, he said.

The company also is testing various pricing models on DVD rentals, he said: “Is there a price point that has very little or no impact on demand? If there’s elasticity in the market, we want to know where that is.” It’s also testing kiosk sales of catalog DVDs at $5, $7 and $9, he said. If the tests are successful, Redbox can immediately launch kiosk-based DVD sellthrough in stores like 7-Eleven and Walgreens that “have traditionally resisted stocking movies for sale,” he said.

Redbox wants to use its widespread and growing presence “to evolve from rental kiosks to a movie marketing machine,” Lowe said. Citing NPD Q1 data, Lowe said Redbox had 23 percent DVD “rental unit share,” second only to Netflix (31 percent) and just ahead of Blockbuster (22.3 percent). Redbox had 72 percent “aided awareness” among DVD renters surveyed this April compared with only 17 percent in February 2009, he said. The company is among the top 10 in credit-card processing transactions, he said. Customers like to rent a DVD on their way home from work from a Redbox kiosk on the right side of the road and return it on the way to work the next morning to another kiosk also on the right side of the road, he said. As a result, “one of four movies gets returned to a location different from where they rented it,” he said. The technology Redbox uses for managing those “inventory logistics” is “second to none,” he said.