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TVOD benefits from C-19 viewing, but SVOD grew more

US TVOD rental sales revenue 2015-2020

Transactional VOD benefited from shelter-in-place viewing in the first quarter of 2020. It could do even better next month when premium VOD revenues begin to kick in. That said, subscription VOD continues to grow faster and spending dwarfs TVOD.

Transactional VOD shows strong growth in the first quarter

Looking at the Digital Entertainment Group’s (DEG) first-quarter estimates for home entertainment spending, there is no doubt transactional video-on-demand (TVOD) saw a similar increase in usage as other sources of video. Digital sales and rentals grew by 15.7% over Q1 2019 to reach $1.42 billion. In Q1 2018 and 2019, digital TVOD saw year-over-year gains of 2.4% and 4.6%, respectively.

Digital rentals, which have been in a slump since 2017, saw the biggest gain, rising by nearly 20% over Q1 2019. Digital purchase revenue has shown consistent growth over the last several years and did better in Q1, increasing by 12.6%.

TVOD outlook for Q2 and beyond

It could be that digital rentals do even better in Q2. DEG says it did not include premium VOD (PVOD) movie rentals in its Q1 totals. Since there were no major PVOD releases in Q1, the effect on the numbers was minimal. However, the second quarter will be different. Trolls World Tour, which released April 10th, generated $100 million in its first three weeks of availability. There will be other PVOD releases in Q2, including The Invisible Man.

The impact of PVOD releases on the digital rental revenue in Q2 could be considerable. For example, if Trolls World Tour revenue had fallen in Q1, it would have boosted the digital rental total for the quarter by 15% of more.

Transactional overall continues to decline

The increased transactional activity in the digital market did not keep up with the decline of physical disc revenue. Disc rentals and sales lost nearly $260 million YoY, while digital rentals and sales gained just under $200 million.

Disc sales fell 22.4% between Q1 2019 and Q1 2020, an almost identical decline compared to Q1 2018 to Q1 2019. Physical disc rentals fell faster (down 18.6%) than the previous year (falling 14.6%.)

US transactional disc and digital revenue 2015-2020

SVOD the clear winner

Renewed interest by consumers in transactional viewing models did nothing to slow their expanding interest in SVOD services. Subscription streaming service revenue increased 27% YoY in Q1, beating Q1 2019’s growth of 21%. According to DEG, revenue reached $4.6 billion, an increase of $1 billion from Q1 2019.

To gain some perspective on the growth, consider Netflix and Disney+ contributions. Between Q1 2019 and Q1 2020, Netflix U.S. and Canada (UCAN) revenue increased by 14% to reach $2.7 billion. As well, in the first quarter, many of Disney+ 30 million U.S. subscribers would have made their first payments after their free trials expired. The service would have contributed approximately $180 million to the total.

SVOD is growing in two dimensions. Penetration continues to increase, rising from 72% last year to 78% in April 2020. As well, consumers are stacking more services into their entertainment package. The number of people using two or more of the big three – Netflix, Amazon Prime Video, and Hulu – increased 3% between 2019 and 2020 to reach 46%. More significantly, 31% started using Disney+, and 6% added Apple TV+ to their entertainment mix.

Why it matters

TVOD C-19 growth was the best in years with digital movie sales and rentals posting banner revenue gains.

Premium VOD releases, which were not a factor in the first quarter, could deliver even sharper increases in TVOD revenue in the second quarter.

SVOD revenue is growing faster than TVOD revenue, even factoring in the renewed interest.

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