Market Watch

UK Video Forecasts Revised Upward in Light of Strong YTD Performance



  • Total video unit sales forecast for 2010 has risen to 234m
  • Steady transition to Blu-ray expected, but slower than previously forecast
  • Higher VAT rate means spending on packaged video will be higher in 2014 but still in decline

Screen Digest has revised its UK retail video forecasts upwards on the basis of year-to-date information from the British Video Association on Blu-ray Disc (BD) hardware sales and DVD and BD software sales. The new forecasts also take into account the recently-annouced rise in the UK VAT rate from January 2011. As a result, total video sales are now expected to be marginally higher than previously forecast throughout the forecast period although the balance has shifted slightly in favour of DVD.

Total video unit sales forecasts for 2010 have risen marginally from 232.4m to 233.9m, representing a decline of just 3.7% compared to 2009. The forecast revision represents a slower transition to BD than previously anticipated.  The resulting higher share of sales accounted for by the lower-priced DVD format in 2010 results in consumer spending on video remaining almost unchanged at £2,044m ($3,202m), a 5.5% decline compared to 2009.

Despite the strong slate of titles, DVD volume sales were down 4.9% in the first five months of the year and we now expect them to reach 218.2m units this year, a decline of 7%. DVD sales will continue to fall over the course of the year owing to events like the FIFA World Cup, excellent summer weather and greater adoption of BD.

The new BD volume forecasts for 2010 are lower than previously forecast (15.7m units down from 16.9m) this is due largely to relatively slow sales of BD hardware in 2010 to date (289m players to end April 2010). Given current monthly performance and recent pricing trends Screen Digest is currently forecasting that hardware sales will reach 1.26m units by the end of 2010. However, if average BD player prices start to decline more rapidly it may still be possible to achieve higher sales by the year's end.

Critically, the shape of forecasts to 2014 has also changed. BD hardware adoption is now expected to be more measured than previously forecast. Screen Digest still expects adoption to reach 35% of TV households by 2014 but the rate of annual increase will be slower in 2011 and 2012.

Lower BD hardware sales will inevitably lead to lower BD software unit sales over those years. Conversely sales of standard DVD sales will be higher, as fewer consumers make the shift to the higher-priced BD format. Overall, however, we now expect British consumers to buy more video units than previously forecast in each of the forecast years, adding an additional 10.2m disc sales in 2014.

VAT is scheduled to rise from 17.5% to 20% in the UK from January 2011 and we expected that most of this increase will be passed on to consumers by video retailers, despite continuing price promotions. While this, combined with the continuing mood of austerity in the UK, may impact on sales, the general effect of the VAT increase on our forecasts is to slow the decline in average DVD and BD pricing from 2011. Although we still expect average prices to decline by an average of 3.4% annually on DVD and 9.3% on BD throughout the forecast period, the 2011 VAT increase means that they will be falling from a slightly higher level.

The higher prices will be enough to push retail consumer spending on packaged video back into growth in 2011, increasing it by 1.5% compared to 2010, to £2,075m ($3,249m). By the end of the forecast period consumer spending, though still in decline, will be £110m ($172m) higher than previously forecast at £1,842m ($2,885m), 35% of which will be accounted for by BD. However, since the increase in spending is generated by the VAT rise, we do not expect it to be replicated at distributor level.

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