Conflicting views on online disc purchases

09 October, 2014 by Don Groves

Australian home entertainment distributors have rejected a new report which forecasts the demise of online purchases of DVDs and Blu-rays as well as CDs.

Market researcher IBISWorld estimates retail revenues in that online category will fall by 7.2% to $131.8 million in 2014-2015, delivering $14.4 million in profits.


Industry revenues are forecast to tumble by 16.7% in 2015-16 and continue dropping at an annual rate of 15.6% to $56.6 million in 2019-20 as digital downloads and streaming become the dominant methods of accessing media.

JB-Hi Fi is the market leader with 12.3%,  followed by Sanity Entertainment at 9.6%. “The online CD, DVD and Blu-ray sales industry is a rare case of an industry that emerged, peaked and will become near extinct in the space of just over 20 years," the report says.

“The ironic aspect is that the technology that gave birth to the industry – the internet – is ultimately the technology that is causing its extinction.

“The industry has endured some tough conditions over the past five years and these are only getting worse… Physical CDs and DVDs are quickly being replaced by digital downloads and streaming technology, which is threatening to turn traditional compact discs into a collectable item.”

Australian Home Entertainment Distributors Association CEO Simon Bush describes much of the report as an “odd piece of confused logic masquerading as research.”

Bush told IF, “For starters it only looks at online DVD sales which are a very small sub-segment, ignoring physical sales via retailers, and then concludes that the market is dead like music.

“I wholeheartedly disagree with this assessment. The logic does not follow. It also talks generally about what I assume are VoD services (as opposed to online DVD physical purchasing), but no mention that EST sales in Australia are in fact equal to VoD.

“Netflix of course and other new SVoD services are due in Australia over the next 12 months and Presto and Foxtel just slashed their monthly plans and no contract plans so the landscape is changing dramatically and quickly. None of this is discussed in any detail.

“The report focuses on online DVD sales and music which do not reflect the greater retail DVD and BD environment and draws the conclusions that the business is over. Certainly for retail physical videos (BD and DVD) there is a long and strong future.”

Responding to Bush's comments, Tim Stephen, IBISWorld industry research manager, said: "It is unfortunate that Mr Bush disagrees with the content and scope of the research. We understand he thinks that due to the narrow scope, it is not painting an accurate picture of the overall DVD and Blu-ray environment. In this case, as with many of our niche industry reports, we attempt to paint a picture of what is occurring within a specific market, online sales of physical CDs, DVDs and Blu-rays.

"For this reason we deliberately excluded bricks and mortar sales as well as digital sales in an effort to highlight trends specifically pertaining to online sales of physical discs. IBISWorld publishes a report on the broader market titled ‘Video Game and Recorded Music Retailing’. However, we believe the online sale of physical discs to be an area of the broader market that is of particular interest to our clients given the current environment. This is by no means an all-encompassing analysis of media sales in Australia, nor was our intent to purvey it as such.

"In compiling this research we looked initially at ARIA and AHEDA statistics, which point to a very significant decline of combined formats’ net revenue, with this decline gathering pace. These statistics were used as a starting point for the analysis which was then overlaid with IBISWorld’s estimates regarding online penetration and consumer spending patterns within a declining industry, in addition to other supply- and demand-side drivers. Indeed, this report only covers online sales of physical DVD, Blu-rays and CDs; sales of electronic formats are included in discussion only from a perspective of the competition that they provide to physical sales.

"The report does not address the specifics of VoD and EST as revenue from these areas falls outside the scope of this industry. As implied by the industry definition, the report also does not analyse the outlook for retail physical videos in general.

"We take all comments from readers and industry professionals very seriously. This is especially the case when these comments come from an individual with a thorough understanding of the industry. We would never claim we always get it right. We have immediately begun reviewing the content and scope of the report. This will include ensuring the definition is clear and unambiguous. If there are any errors in the published data we will be sure to rectify these before republishing the report."