Market Watch

UK 2010 Video Forecasts Updated and Provision Made for UK Austerity Measures


Display Driver IC Forecast

  • Consumer spending on video to fall 2.9% in 2010 (previously -5.6%)
  • 2011 spending forecast unchanged, but now represents year-on-year decline of 1.5%
  • BD forecasts reduced for 2011 but DVD sales will compensate (at least in volume terms)

IHS Screen Digest has revised its 2010 year end forecasts for the UK based on year-to-date data supplied by the British video Association (BVA). We have also made some adjustments to the UK forecasts to 2014 to take account of the austerity measures being introduced in the country.

Total consumer spending on retail video in 2010 is now forecast to fall by 2.9% compared to 2009, an improvement on the previously forecast 2010 decline of 5.6%. As a result, we now expect consumers to spend £2,102m ($3,294m) on buying DVD and BD in 2010, rather than the previously forecast £2,044m. The key change to 2010 year end forecasts is in the average price of a DVD which has held up better over the third quarter than IHS Screen Digest previously anticipated. Average DVD prices are forecast to remain stable at £8.63 ($13.52) compared to the previously forecast 4% decline. Year end 2010 DVD unit sales remain unchanged and therefore consumer spending on DVD is now expected to be higher at £1,882m ($2,949m).

However, based on YTD Blu-ray Disc (BD) software unit sales we have also lowered our forecasts for this sector from 15.7m to 14.5m by year end 2010. This represents an increase of 73.4% compared to 2009. The average BD price remains unchanged thus lowering consumer spending on the format in 2010 from £238m ($373m) to £220m ($345m).

The austerity measures introduced by the UK Government are expected to impact negatively on both DVD and BD formats in 2011 and throughout the forecast period. We have therefore lowered our DVD unit sales forecasts for 2011 from 206m to 203m whilst BD unit sales have been reduced from 28m to 25m, reflecting the more conservative uptake of BD hardware now forecast. However average pricing and thus consumer spending (though not distributor revenues) will be boosted by the increase in UK VAT (sales tax) from 17.5% to 20% scheduled for January 2011. As a result consumer spending on home video retail in 2011 remains largely unchanged at £2,071m ($3,246m). However given the improvement in the 2010 outlook this now represents a decline of 1.5% compared to the previously forecast 1.1% increase.

Analysis
In previous years retailers in the UK have typically price promoted catalogue titles though Q3 driving down average price throughout this period. In 2010, although some price promotions were evident, prices were in line with those seen in 2009, rather than lowered even further as has been the case in previous years, and thus year on year average prices were maintained. This price parity is in no small part due to the end of the 'VAT holiday' at the beginning of the year which raised VAT from 15% to 17.5%, a 2.5 percentage point increase that is to be repeated in January 2011.

Evidence of the impact of austerity measures is yet to become apparent in UK consumer video purchasing, however we expect this to happen. The UK is not alone in having such measures imposed, however most other markets where they have been introduced were either already showing significant declines in home video spending (and thus their impact has already been felt within that decline) or their impact has been countered by other factors (eg, changes to pricing and windowing legislation in France). We do not expect the true impact of the austerity measures in the UK to be felt until Q1 or even Q2 2011; though some hardware purchasing may suffer through Q4 2010 as a result of lower consumer confidence and expected job losses. Home video has already proven that it is no longer as recession-proof as it was once thought to be, but as a category it remains an affordable luxury. The immediate impact of these measures will be to further slow the speed of transition from DVD to BD; as fewer households invest in new video hardware and a lower number of consumers stretch their budgets to cover BD rather than DVD versions of content. Accordingly in 2011 the forecasts show a slower take-up of BD software but, as result of the interaction between the forecast models, marginally higher spending on DVD compensating for the reduction in BD.

The IHS Screen Digest video forecasting model includes a number of economic inputs, currently supplied by the Economist Intelligence Unit (EIU). Whilst provision has already been made for the introduction of austerity measures in the numbers, the next revision in the underlying economic data (expected in Q1 2011) may further adjust the video forecasts to account for the longer term impact of the recession on the economy in the UK (and indeed elsewhere).

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