The Western European video entertainment market is now demonstrating confident expansion for the fourth consecutive year, writes IHS Technology analyst Andrey Popov, with 2013 being the year when the continuous decline in physical sales began to be offset by the growth in online media.
Consumer spending on home video entertainment is now projected to increase with a CAGR of 3.5 percent per year, reaching €8.7 billion in 2020.
Looking at the trends in composing sectors, we see that physical medium still dominates the market. At €3.8 billion, the sector accounts for just under a half of the total consumer spending on video entertainment.
The ongoing decline in physical medium is now nearing a decade from the time it began, with Scandinavia leading the trend with the strongest decline. Physical medium is also struggling in the UK, while Germany is demonstrating particular resilience.
The disc format will see further significant decline, with spending reducing by nearly 50% through to the end of the decade, with no plateauing in near sight. The rental segment has struggled to maintain presence altogether; closures of dedicated stores have practically removed disc rental as an option for video consumers.
The online transactional sector, in effect iVoD and EST, will see growth in consumer spending at a CAGR of 7.0 percent through to 2020. However, with share of the sector at mere 13%, this will not be nearly enough to offset the decline in physical by itself.
The size of the digital retail and rental subsectors are approximately even in size, with no significant trend discrepancy observed between the two formats; except for the markets where there are significantly divided content windows for the two, as is the case with France where movies appear earlier on digital retail.
Spending on subscription online video, meanwhile, is demonstrating phenomenal growth, increasing by nearly a third in the past year alone. The sector now accounts for 40% of the total market consumer spending, and is projected to experience continued expansion well into the future, demonstrating growth of CAGR of 18.9 percent through to the end of the decade.
Netflix can be decisively labelled as the core driver of growth of the subscription sector in Western Europe, but the fundamental trend goes beyond the adoption of the international giant.
Netflix has acted to promote the awareness and appeal for the subscription video sector, which is now attracting more interest and investment than ever. Nevertheless, Netflix and Amazon will remain the biggest services in Western Europe by a wide margin, presently standing at 19.3 and 5.3 million subscribers respectively.
There are three main changes in the fundamental structure of the market that support the outlook presented above. Consumers’ continued transition to alternative forms of video consumption, presented by TV operators and online services, persists in driving rapid shelf space reduction for disc medium.
The primary factor for growth of online video is the greater broadband penetration with higher average connection speed, which naturally expands target audience for online services. The improvement in infrastructure in Western Europe, over the period from 2010-2020, adds 4.8 million new broadband households every year on average.
The unit base of connected devices used to watch online video grows as well, currently numbering just under a billion units. By far the greatest increase in connected devices was demonstrated by Smartphones (+36 million units), followed by Smart TVs (+13 million units), and DMAs (+10 million units; includes devices such as Chromecast and Apple TV).
The growing size of the digital sector continues to drive better quality television content for on-demand services, which in turn pushes appeal for all-you-can-eat subscription models.
Netflix and Amazon combined are expected to spend over $10 billion on content this year, an astounding amount, also being an increase of almost a third compared to 2016.
About the author
Andrey Popov conducts research which constitutes part of the Home Entertainment coverage within IHS Technology. For more similar content, as well as information about our products, visit technology.ihs.com