Market Insight

Falling prices depress Japanese rental returns in Q1 2015

June 03, 2015  | Subscribers Only

David Scott David Scott Associate Director – Research and Analysis, Service Providers & Platforms
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  • Total rental video shipments -3.4% and revenues -14.6% in Q1 2015
  • BD rental shipments up 11% but revenues down 13% due to steep fall in average price
  • Shipment of rental DVDs down 4.2%; DVD revenues down 14.7%
  • IHS has revised down its full-year rental BD shipment forecast to 2.5 million, generating ¥4.8 billion ($45.1 million) in distributors’ revenues.

 

Distributor revenues from Japanese physical video rental continued to decline in Q1 2015. A rise in Blu-ray Disc (BD) rental sales in January to March 2015 failed to compensate for the continuing decline in the rental DVD sector according to IHS analysis of first-quarter 2015 data from the Japan Video Software Association (JVA). JVA member companies shipped nearly 6.7 million units to the rental market in the first three months of 2015, down 3.4% compared with the previous year. Revenues, however, declined 14.6% to ¥13.1 billion ($124 million) over the same period.

According to JVA, its members shipped 421,000 BD rental units to the Japanese video trade between January and March 2015, up 11% compared with the previous year. Despite this, revenues from the format declined 12.8% to ¥839 million ($7.9 million) reflecting a 21.5% slump in the average trade price of a rental BD to ¥1,992 ($18.82). IHS has revised down its full-year rental BD shipment forecast for the whole Japanese market, from 2.6 million to 2.5 million in light of the latest results, whilst the steeper than expected decline in prices has reduced our revenue forecast from ¥5.2 billion ($49.0 million) to ¥4.8 billion ($45.1 million).

The average trade price of a rental DVD also fell, although not as steeply, down 11% to ¥1,971 ($18.62) in Q1 2015 compared with the corresponding period a year earlier. Combined with a 4.2% decline in rental DVD unit shipments to just over 6.2 million, this resulted in JVA member revenues from the format declining 14.7% to almost ¥12.3 billion ($116 million). These results are in line with IHS forecasts, which now stand at 31.0 million rental DVDs shipped to the trade in 2015, generating ¥61.8 billion ($584 million), down from our previous forecast of ¥63.6 billion ($601 million).

As a result, total unit shipments to the rental video sector in 2015 are now expected to decline 7.6% to 33.5 million this year, a slightly steeper decline than the 5.9% fall recorded in 2014. Total revenues from the sector will also decline from ¥74.3 billion ($702 million) to ¥66.6 billion ($629 million) over the same period.

At consumer level, IHS has adjusted its forecast for consumer spending on rental video software in 2015 from ¥216 billion ($2.0 billion) to ¥212 billion ($2.0 billion) to reflect the lower than expected result in the rental BD sector. We expect BD rental spending to account for ¥22.9 billion ($216 million) of this figure, down from our previous forecast of ¥24.5 billion ($231 million), leaving our DVD rental spending forecast unchanged at ¥189 billion ($1.8 billion).

Our analysis:

The decline in rental video sales in Q1 2015 is due to improving economic conditions, evolving consumer behaviour, and an increase in competition from other home entertainment offerings, all of which are expected to drive further declines in physical rental video sales during 2015.

An improvement in the Japanese economy is driving up consumer confidence and household income, encouraging consumers to spend on retail video, and reducing the need for them to opt for cheaper forms of entertainment such as rental video software (see separate update on Q1 2015 retail results).

Meanwhile, increasing consumer adoption of digital video platforms such as those from Google, Amazon, NTT, and Hulu Japan is reducing footfall in video rental shops, reducing rental transactions and squeezing existing rental stores, particularly those of smaller operators. As a result, the country’s two leading rentailers, Tsutaya and Geo respectively, increasingly dominate the market, accounting for around 90% of shipments between them. This market domination, coupled with declining consumer demand, is likely to be a key factor behind the reported fall in average trade prices for rental product.

According to IHS analysis of JVA data, the number of physical rental stores in operation in Japan had fallen to 3,274 by end 2014, a decline of 5.7% since the end of December 2013.

 

Geography
Asia Pacific Japan
Research by Market
Media & Advertising
Category
Video
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