Why sales dropped more than 86% in 13 years

on Nov9
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DVD sales have been on the decline for over a decade, but a slew of new streaming services and a shift in how consumers are watching movies and TV shows could be the final death knell for the technology.

The same can be said for Blu-Ray discs.

At its peak, DVD sales reached $16.3 billion and were 64% of the U.S. home video market. That was 2005. These days, DVD sales account for less than 10% of the total market, with total sales hitting $2.2 billion in 2018.

Blu-Ray discs, which have always been slightly more expensive than DVDs, launched in 2006. At most, Blu-Ray sales reached $2.37 billion in 2013, before falling to $1.8 billion in 2018. It’s likely that Blu-Ray sales fractionally impacted the decline of DVD sales, but the fact that DVD sales still outpace Blu-Ray sales shows it’s not the real culprit.

Instead, a combination of the Great Recession, a rise in customers buying on-demand and digital copies of films and the launch of streaming services is what has caused DVD sales to decline more than 86% in the last 13 years.

And that decline could get worse as more streaming services enter the market. Disney+, Peacock and HBO Max are all arriving within the next year. Apple TV+ rolled out on Nov. 1, and Disney+ arrives Tuesday. 

Leading up to the economic downturn, there was a big boom in DVD sales. Between 2001 and 2005 customers had transitioned away from VHS and were buying up not only new films as they came out, but older films that were being released on DVD.

However, once customers had bought the DVD versions of those library films, their DVD spending started to decrease. So after hitting a high of $16.3 billion in DVD sales in 2005, there was a 3% drop in 2006. But, in 2007, DVD sales actually rose about half a percent.

The real inflection point was the Great Recession. From 2007 to 2008, DVD sales slumped 26%, falling to $11.6 billion from $15.7 billion. Bruce Nash, founder and president of Nash Information Services, said consumers ditched DVD spending as their disposable income shriveled, kicking off the demise of the DVD industry.

The U.S. home video market also slumped during the same period. After hitting a high of $25.2 billion in 2005, by the end of 2008, total sales of DVDs, Blu-Rays, on-demand video and digital had fallen 28% to $17.9 billion.

The DVD sales decline was compounded in the years after the economy had recovered because of the rise of video on-demand — renting and buying movies through cable subscriptions — and digital downloads began to grow in popularity.

Consumers could rent movies for as low as 99 cents and buy a movie outright for around $10. For comparison, DVD prices were around $20 and Blu-Rays were closer to $25. Many had adopted digital film purchases during the economic downturn because it was a cheaper option.

“What we’ve seen is that the digital market is very different from physical market,” Michael Smith, professor of information technology and marketing at Heinz College and Tepper School of Business, said. “And when someone moves from physical market to digital market, they move across all platforms. Once they go digital, they don’t go back to DVD.”

And as customers were transitioning to digital, streaming services also arrived on the scene. (Data on the subscription service model is only available starting in 2011.)

“The big fundamental shift here is that when you look at a film you want to watch, and maybe you missed it in theaters, 10 to 15 years ago, you can buy the DVD or rent from Blockbuster,” Nash said. “Now, I’ve got HBO and [the film is] going to be on HBO in a couple months. It’s not worth buying the DVD to watch it. I’ll just wait a bit.”

Since 2011, platforms like Netflix, Hulu and HBO have seen sales balloon 1,231% to $12.9 billion. In the meantime, DVD sales continued to slip, falling more than 67% between 2011 and 2018.

With the help of streaming services, the home video market has also been revived. In 2018, the U.S. market reached $23.2 billion.

“Now the question is: Is $25 billion just the natural cap?” Nash asked.

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