In the first quarter of every year, the Digital Entertainment Group can be counted on to offer an optimistic take on a metric of its own design, dubbed Total Home Entertainment Spending in the U.S. market. And 2024 is no exception: Preliminary data placed total spend in 2023 at $43 billion, up 16.8% over the prior year.
But for DEG, which was founded in 1997 as a trade group focused on the home video category, maintaining this positive story requires making the occasional tweak to how it reports this metric.
For instance, if DEG hadn’t made a significant change in 2011 and continued to track only the core home video business itself — which includes DVD sales and rentals, VOD services such as Xfinity and Electronic Sell-Thru platforms as in iTunes — that number would have plummeted from $17 billion to $6 billion (an 65% decrease) in the latest report issued earlier this month.
But because DEG added subscription streaming to home entertainment spending from the likes of Netflix and other SVOD services in 2011, that revenue line alone rocketed from $994 million to $37 billion in 2023. That’s a borderline comical 3,631% increase in just 13 years.
Fast-forward to 2024, when DEG made another adjustment to how it’s doing home video math. But when you decipher this one, be prepared to understand that no creative calculation in the world will be able to save the DVD from finally hitting rock bottom this year.
In the latest Digital Media Entertainment Report, DEG has introduced the new metric Physical Product, a combination of two revenue streams it previously reported separately — DVD sales and rentals. Rentals lost more than 50% of the previous year’s total revenues in 2023 because of, according to DEG, Netflix’s decision to end its DVD rental service at the end of October.
Starting in the 2024 report, Physical Product will account for only DVD sales, with DVD rentals being completely phased out. This call was made just a few years after DEG demoted rentals from a dedicated category, with separate metrics for brick-and-mortar stores, kiosks and subscriptions, to just a single sum.
Physical Rentals’ impending departure raises questions about what’s going to happen to the lion’s share of the Physical Product figure in 2024 — the sales figure that didn’t erode too badly coming out of 2022 but is likely to shrivel this year as Best Buy stops stocking DVDs in stores. What’s worse, there are signs of more such retail departures.
DEG did not publish the exact split of Physical Product between sales and rentals, but rough estimates can be calculated based on the existing information. DVD rentals in 2022 were $502.35 million, so assuming the “more than 50%” decline in rentals from 2022 means roughly 55% of that number, that puts physical rentals revenue for 2023 around $225 million.
If you subtract that number from Physical Product (roughly $1.6 billion), that leaves 2023 physical DVD sales at around $1.36 billion — a 16% decline from 2022.
VIP+ projects 2024 will be the first year the DVD will be a sub-billion-dollar business. Truth be told, it could have very well crossed that benchmark this year had it not been for the successful Blu-ray release of “Oppenheimer” in the fourth quarter.
It’s easy to picture home video enthusiasts meticulously sorting through shelves of Criterion and Kino Lorber releases. But per DEG’s findings, the health of home entertainment is inextricably linked to the same films that lead the box-office charts.
This has bleak implications for the home market in 2024. Last year’s strikes pushed most of Disney’s intended slate and others to 2025, while hands-down home hits such as another “Spider-Verse” sequel and a new Jordan Peele film remain undated. March’s “Dune 2” and “Deadpool & Wolverine” in July are sure bets, but otherwise dependable franchises, including “John Wick” and “Mad Max,” will see spinoff films bow this year in “Ballerina” and “Furiosa,” respectively, making them tougher guesses among decades-late sequels to “Gladiator” and “Twister.”
For its part, DEG acknowledges the cloud the 2024 box office will cast over the DVD marketplace in this year’s report, stating, “Announced delays in 2024 theatrical releases due to the Hollywood strikes may have an adverse impact in the next few quarters.”
All in all, it’s going to make for a humbling final-stage collapse for a product that was once the toast of Hollywood. Introduced in 1996 as a digital, higher-quality replacement to the analog VHS tape, the DVD experienced an exponential rise in its heyday similar to what streaming is enjoying today.
This growth wasn’t fueled just by new releases but by digital remasters and deluxe DVD editions of classic films that catered to collectors and nostalgic cinephiles. Roughly half of all U.S. homes owned a DVD player by 2003; three years later, DVD sales peaked at $16.6 billion, padding the studios’ bottom line through the turn of the century.
But good times don’t last forever. In 2007, Netflix, then a modestly successful DVD rental service founded in 1997, launched its digital streaming platform. And suddenly, the whole notion of consumers owning or renting discs was called into question by a model that enabled much cheaper access without them having to leave home.
By the next year, DVD sales decreased by 9% — the first significant dip after years of steady numbers. But that was just the first of several consecutive years of $1 billion-plus declines, draining the DVD market to just $6.85 billion by 2017. In 2023, DVD purchases have shrunk by around 92% since its 2006 peak.
Streaming Subscriptions, meanwhile, is increasingly the sole category holding up the entire home entertainment industry. As of 2023, streaming alone makes up about 86% of total home entertainment spend, while the remaining categories — Physical Product, VOD and EST — have either decreased or flatlined year after year. Even after a year of strikes, price hikes, layoffs and content purges, streaming’s grip on the industry has never been tighter. More crucially, there is nothing else in the home entertainment world that is currently generating any meaningful growth.
Netflix’s exit from its original rental service shouldn’t come as a surprise. When the company announced the move last year, DVD rentals had brought in a measly $145.7 million in revenue in 2022 — not even 1 percent of its $31.6 billion total revenue, the rest of which was made from streaming. But as much of a blow as Netflix’s withdrawal was, the DVD rental market had already dwindled to just $500 million before the company bowed out, with the other rental options in the market, such as Redbox, watching and waiting.
Last year also saw the stage set for a potentially fatal year for DVD sales, as in the fall, Best Buy announced its intention to discontinue DVD and Blu-ray sales in early 2024. At the time of this writing, one can currently still buy physical movies there, but this is likely the retailer emptying its remaining stockpile. The most recently released DVD showing on its website is a 4K UHD Blu-ray of “The Man in the Iron Mask,” which came out the day after Christmas.
Best Buy’s absence leaves Walmart, Target and Amazon as the top U.S. retailers still supplying DVDs, but even that’s hardly set in stone. While Target hasn’t officially left the DVD business, shoppers have recently noticed drastically reduced shelf space for physical movies across multiple locations.
Walmart, meanwhile, was reportedly in talks with Universal and Warner Bros. about assuming partial management of their joint DVD distribution venture, Studio Distribution Services, but nothing has been reported on that since August. Even as the retail giant makes up roughly 45% of DVD sales, it has still reduced floor space for physical films by 20% in late 2022.
Still, the bad luck for DVDs in 2023 didn’t stop at Best Buy and Netflix. Disney ceased DVD distribution for all of Australia in August, while Ingram Entertainment, once a top home entertainment distributor, began winding down operations in October.
The repercussions of everything covered here on DVD sales are still playing out, so the full financial impact won’t be tallied until next year’s DEG report. But even now, the numbers make clear that the DVD is finally about to become something that doesn’t really qualify as a mass-market product.
DVD collectors and preservationists argue that DVDs’ dire situation signals a vinyl-like revival brewing. Indeed, vinyl sales cratered before eventually transforming into a specialty item for audiophiles, now operating in a vastly smaller market compared with its glory days but one that is nonetheless growing.
The same thing could happen to DVDs, but only time will tell — we might even have an answer by this time next year.
Michaela Fry, Kaare Eriksen and Andrew Wallenstein contributed to this article.
