David Farnor | On 05, Jan 2017

Digital video revenue has overtaken DVD and Blu-ray sales for the first time in the UK.

The rising popularity of online streaming of both films and TV surged in 2016, reveal new figures from the Entertainment Retailers Association. Subscription services have been a big driver of streaming’s growth, with the affordability and flexibility of services such as Netflix, Amazon Prime Video and NOW echoing the appeal of Spotify among music fans. Netflix now has 86.7 million subscribers worldwide, adding 3.2 million members in the UK and other non-US countries in Q3 2016. Some of the most talked-about TV shows of 2016, meanwhile, involved online services, from Netflix’s Stranger Things to Amazon’s The Grand Tour.

Revenues from both download and subscription services in the UK reached a combined total of £1.3 billion in 2016, up 22.8 per cent from 2015. In contrast, physical revenues were down 16.9 per cent to £893.6 million, as both DVD and Blu-ray discs suffered double-digit declines. Physical sales dropped 16.9 per cent in 2016, while physical rentals fell 21.2 per cent.

As a result, digital has become the dominant player in the video market, accounting for 58 per cent of total revenue. While some things change, though, others stay the same: the biggest-selling video of the year was, of course, Star Wars: The Force Awakens with sales of 2.3 million units.

“Physical entertainment retailing is clearly off its peak,” says Kim Bayley, CEO of the ERA, “but it is still a £2.2 billion market. The growth of vinyl in particular shows that physical formats can flourish if they offer distinctive benefits. The strength of the DVD and CD formats over the Christmas period shows that physical still dominates when it comes to gifting, for instance.”

Nonetheless, the tide has turned. Combining music, video and games industries, investment by new digital services such as Apple, Google and Amazon has resulted in entertainment sales running £1 billion ahead of where they were just four years ago. The ERA’s preliminary figures (final numbers will be published in the ERA Yearbook in March) indicate that online services helped the entertainment sector achieve all-time record sales of £6.3 billion in 2016, up 3 per cent on 2015. That 3 per cent growth is even more impressive, notes the ERA, since it comes in comparison with 2015, which was a 53-week year.

“The music, video and games industries were understandably nervous about the advent of new digital services, but these figures provide resounding evidence of the benefits of our members’ investment in innovation. To have added over £1bn in new revenues in just four years is an incredible achievement,” adds Bayley.

“To put it another way, take away today’s digital services and the entertainment market would be barely a third the size it is today.”

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