Lipstick on a pig

The Digital Entertainment Group takes the Sarah Palin Rouge-Lipped Hockey Mom Prize this week for slathering lipstick on the runtish snout of the home video market. The industry spinmeisters reported that total consumer home entertainment spending for the first half of 2009 was down a mere 3.9% compared to last year. Not bad, you say, in the depths of the Great Recession.

From the perspective of the Hollywood studios, however, things aren’t looking quite so “not bad.”

blu_ray_300pxMost of the good news, such as it was, came from DVD and Blu-ray rentals, which surged 8.3% through June, raking in $3.4 billion for the likes of Netflix, Blockbuster and Redbox’ dollar-a-night kiosks. The studios see a much smaller slice of the consumer rental dollar, however, than they get from DVD and Blu-ray sales, which fell a painful 13.5%. In a break from past practices, DEG didn’t break out DVD and Blu-ray sales this times. But Video Business calculated that DVD sales were down a whopping 17%, partially made up for by 91% growth (from a much smaller base) in Blu-ray sales.

The other “good news” came from digital sales and rentals (movie downloads) and cable and satellite video-on-demand, which combined grew 21% for the half, to $968 million. It’s not clearly exactly how DEG is counting things, but if that total includes Netflix’s subscription streaming business, that’s not really helping the studios much, either, since they see an even smaller percentage of that than of traditional rentals.

Bottom line: Consumer spending has shifted massively away from the studios’ most profitable channels into less profitable channels. And Blu-ray has done nothing to stem that tide.

While VOD is a good business for the studios, it remains tiny compared to other high-margin channels, to say noting of low-margin channels like DVD rentals and subscription streaming.

Sony Pictures Home Entertainment president David Bishop was at least honest about where things stand. “People are trying to save money, and there is strong evidence that consumers are trading down. They are renting instead of buying,” Bishop told Video Business. “That is the growth category now in DVD.”