Bolstering Home Entertainment in 2023

The dawning of a new year brings to the home entertainment sector, both streaming and transactional, a host of challenges and questions and a few opportunities.

FREMONT, CA: Streaming and transactional home entertainment are both facing several challenges and opportunities at the start of this new year. The US is once again on the verge of a recession, which has led to a wave of recent layoffs and budget cuts at the majority of the major studios and streamers. The fact that Hollywood is undergoing a thorough self-examination, with the question of whether streaming is a viable business model given the rising cost of content and the limited returns provided by affordable all-you-can-watch subscription plans, only serves to exacerbate the economy's concerning outlook.

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The theatre industry, which has historically served as the starting point for movies, has been severely impacted by streamers who purchase and even produce their content, as well as studios controlled by media firms who give preference to their streaming competitors.

Gower Street Analytics forecasts an increase in global ticket sales to USD 29 billion in 2023 from an estimated USD 25.8 billion in 2022, although even at that level, ticket sales are still well behind the USD 42.3 billion pre-pandemic 2019 box office revenue. Fewer films being released in theatres is one factor, which also affects transactional home entertainment, which used to be the crucial second window studios sought after to support theatrical underperformers while improving overall profits. However, despite the influx of high-profile theatrical movies planned for the coming year, Bob Buchi, president of the worldwide home video at Paramount Pictures, remains upbeat about the transactional side of the business going into 2023. He also insists that quality is more significant than quantity.

Buchi states that at Paramount, they are excited about the sales and drafting opportunities they will have with the return of key franchises like Mission: Impossible, Transformers, Scream, Teenage Mutant Ninja Turtles, and Paw Patrol. The theatrical slate across the industry in 2023 promises to be even more robust and consistent than it was in 2022.

Home entertainment is still very essential to collectors and cinephiles who value the highest audio and video presentation quality possible as well as the captivating supplementary features, while general audiences value the wide variety and freedom to watch their favorite movies whenever they choose.

Michael Bonner, president of Universal Pictures Home Entertainment concurs that the market will probably be quite fragmented due to the studios’ various release plans. However, Universal is very upbeat and enthusiastic about the chance to enhance the category's growth in 2023 with an exceptionally broad slate, which includes Fast X, The Super Mario Bros. Movie, and Oppenheimer. Adam Frank, Lionsgate's SVP of worldwide digital sales and distribution, is also proud of the company's lineup of theatrical releases, which he anticipates will have a positive impact on traditional home entertainment.

Jason Spivak, EVP, of distribution for Sony Pictures Home Entertainment in North America, opinioned that transactional and subscription video-on-demand (SVOD) are not mutually exclusive. This is especially true if smart windowing results in synergies between the two entertainment consumption models. He also remarked that customers have the option of coexisting with streaming services and receiving different kinds of support as needed. In this regard, the audience does not have a choice between the two. Customers benefit from collection building with transactional, whereas streaming appeals to customers who may have broader interests.

Considering the TV series, it is observed that streaming has become a key venue for viewers to enjoy our new and classic shows, providing them with convenience for discovery and binge-watching. Transactional continues to be a wonderful way for some programs' fans to get access to and collect the newest seasons and episodes, as demonstrated by the performance of Better Call Saul, which had the best-ever season in terms of digital sales in its first six months of availability.

It should be emphasized that Sony Pictures is the only significant studio lacking a brand-specific streaming service. Sony made separate agreements with Netflix and Disney+ for exclusive Pay 1 TV (streaming) rights to their theatrical movies in 2021, reportedly totaling three billion USD. Among others, these movies used to be distributed to Starz, HBO, Epix, FX, and Showtime. The original rights to Sony pictures cost a lot of money to Netflix. The movies are only available to Disney+ following Netflix's 12- to 18-month limit. Scott Stubler, head of original films at Netflix remarks that this sets out a fresh supply of first-run films for Netflix movie lovers.

Buchi of Paramount supports Spivak's claim that streaming and transactional home entertainment can coexist. The industry will continue to experiment with windowing, pricing, and release strategies market by market. At Paramount, they are collaborating better than ever with their colleagues in theatrical and at Paramount+ to maximize the marketing expenditure most efficiently and to utilize common consumer messaging. In 2022, they released Orphan: First Kill concurrently in a constrained theatrical run, on PVOD/PEST, and Paramount+, allowing customers to choose their viewing option. They also discovered that the film was effective across all platforms because of the unified messaging and group effort, which caused all boats to rise. Top Gun: Maverick, which undoubtedly had one of the most extraordinary theatrical runs in recent memory, is contrasted with that technique. Based on a more conventional windowing pattern, the movie made close to USD 1.5 billion at the global box office before becoming a huge hit on home entertainment platforms and the best-selling digital release of all time.

To satisfy the customer and maximize income across all channels, the ideal release strategy for each film must be carefully considered. Buchi emphasizes the importance of working with retailers. He further mentions how the major merchants continue to pursue innovation, new growth prospects, efficiency, and paradigm shifts, all of which have the potential to result in fascinating advancements we'll see put to the test in 2023 and beyond. They intend to investigate the growth of NFT-bundling with premium items and experiences for the super fan, as well as additional product extensions for our cherished franchises. Headless commerce is the separation of an e-commerce application's front end and back end.

Retailers predict that given the uncertain economic outlook, shoppers will become more value-conscious. Cameron Douglas, vice president of home entertainment for Vudu and Fandango, predicts that there will still be a variety of ways to consume entertainment in 2023. But they anticipate that shoppers will be more value-conscious. Platforms like Rotten Tomatoes will become even more helpful in the future, not only for validating fans' entertainment choices but also for assisting people in choosing worthwhile next-episode programming.

CEO of Shout, Garson Foos, a leading independent film distributor, plans to continue Shout’s expansion in the transactional arena with theatrical new releases, big new anime features, and a name-brand library coming to market. The transactional business has continued to be robust and entered into several agreements for both physical and TVOD rights–TVOD with independents and independent studios. As they continue to develop fresh strategies for interacting with ardent fans, the 4K format is opening up many opportunities. As there are more quality titles accessible to stream, the transactional industry is under strain. However, there will always be consumers who will pay for the finest version of something and ad-free streaming.

Gift sales continue to be particularly strong for independent retailers, almost solely on the physical side of the industry. Despite reports that gift purchases have moved online, Foos says there is little data to support such a claim. When people give holiday gift cards in late December and early January, they still see strong sales. And around the holidays, demand for complete-series TV sets, luxury film sets like Friday the 13th, and Halloween, as well as its deluxe Steelbook bundles, always increases significantly. Nothing wishes people a Happy Hanukkah as much as our new Steelbook Carrie 4K UHD releases.

Ed Seaman, chief operating officer of the MVD Entertainment Group, adds that people appreciate physical gifts, and discs are still fantastic tangible gifts. Deluxe Blu-rays and UHDs are highly sought-after, and not simply for their greater quality, similar to the vinyl collector's market. Nobody anticipated vinyl's growth after its rebirth 15 years ago, yet each year it soars to new heights. The collector's market will probably be followed by the video market. With the market shifting toward AVOD (ad-supported streaming), digital gifting appears to be becoming less and less significant. Overall, Seaman thinks that transactional can be problematic for independent products and catalogs.

Due to challenges like high content prices, fierce service competition, a maturing market, and, until recently, a reliance solely on consumer subscriptions for revenue, the subscription streaming side of the business, which according to the most recent estimates from DEG: The Digital Entertainment Group now accounts for nearly 85 percent of consumer home entertainment spending, is expected to experience continued turbulence in 2023.

Viewers will continue to seek a wider variety of entertainment options, including experiences that are transactional, subscription, ad-supported, and possibly even theatrical, social, and immersive, delivered through major and specialty services, as well as more affordable, customized, and user-friendly entertainment packages.  President and chief executive officer of OTT.X, Mark Fisher remarks that days, when consumer entertainment is primarily developed and distributed by a community of monolithic giants centered in Hollywood, will be short-lived.

In 2022, subscription streaming may have kept up its position as the main method for customers to enjoy entertainment at home or on the move. However, the King Midas touch, which was first experienced during the height of the pandemic, when theatres were shut down and residents were urged to stay at home, is unquestionably no longer present, as shown by the introduction of less expensive, advertising-supported subscription plans by both Disney+ and Netflix in late 2022 to increase revenues. The gambit's success is still up in the air, but early reports indicate that Netflix may be having some difficulties. Only nine percent of new Netflix domestic subscription sign-ups came from the USD 6.99 Basic With Ads plan during its first month of availability, according to research firm Antenna, while only 0.1 percent of current Netflix U.S. users converted to the ad-supported option. In addition, Reelgood discovered that the ad-supported tier is missing hundreds of movies and TV episodes.

A lack of theatrical feature films, especially after the year's midpoint, was a result of Hollywood's streaming-over-everything philosophy, as the financial realities of creating content for primary consumption on all-you-can-watch streaming services had a significant impact on studio business plans. Unsurprisingly, Gower Analytics reports that box office receipts for 2022 were up 21 percent from 2021 but were still much lower than they had been before the pandemic. The continuous decline of the disc (DVD and Blu-ray) and, to a lesser extent, a la carte digital sales and rentals, which were once the major post-theatrical revenue generators, will have an even greater influence on Hollywood's bottom line in 2022.

Indeed, movies rarely make enough at the box office to turn a profit. In the not-too-distant past, strong packaged-media sales, which for a time even exceeded theatre profits, as well as foreign licensing rights more than made up the difference for even movies that lost money at the box office. Even studio decisions about whether to give movies the go-ahead or not began to consider projected disc sales.

Hollywood, however, seemed to lose interest in this once-vital second window as subscription streaming took over as the primary method of home entertainment consumption. The studios made attempts to convince people to buy movies digitally, but they weren't successful. This was especially true given that Netflix and other streaming services offered a month's worth of entertainment for about the same price as a single digital movie. Meanwhile, discs were suddenly viewed as outdated technology. Approximately USD 1.7 billion, or ten percent of that amount, was the total in 2022.

Universal's Bonner claims that his company had a very successful year. Consumer demand for content across windows and formats is solid, and Universal's transactional business remained very strong from premium windows through to the catalog. With titles like Sing 2, Jurassic World Dominion, and Black Phone leading the way, the premium Windows continued to produce significant interaction with consumers and tangible benefits to our home entertainment company. Giving customers more freedom and choice over when and where they can watch movies is helping to increase uptake and engagement.