Hollywood extends slow turnaround in home video sales

LOS ANGELES (Reuters) - Hollywood studios continue to see a slow turnaround in home video sales after a seven-year decline, as consumers increase the numbers of movies and TV shows they stream online and buy more high-definition Blu-ray discs as DVDs fall from favor.

The Digital Entertainment Group, a trade group whose members include studios and electronics companies in the video business, is scheduled to announce on Sunday that U.S. consumers spent $3.96 billion to buy or rent TV movies and TV shows in the second quarter this year, a scant 0.3 percent more than a year earlier.

Still, that was the second consecutive quarter of growth in Hollywood's "ancillary market" for films and TV shows and the third in the past four quarters.

In the first half of the year, consumers spent $8.4 billion to rent, buy or stream movies, a 1.4 increase from last year.

Growth in the ancillary market is crucial to Hollywood studios, whose films often generate more revenues from that market than from the domestic box office.

For the first time, digital delivery of movies surpassed movie rentals in the second quarter, with consumers spending $1.2 billion on movies from Netflix subscriptions, ITunes downloads and other digital distribution methods, an 81 percent increase.

Consumers spent nearly $1.1 billion to rent DVDs in the second quarter from stores, kiosks and other means, a 27 percent decline. TV viewers ordered $478 million through video on demand services from cable and satellite operators.

"We're seeing strong growth in digital distribution, a business that has great margins for us," said Craig Kornblau, president of Universal Studios Home Video and DEG steering committee member.

The group said sales of high-definition Blu-ray discs increased 13.3 percent in the first half, but that was not enough to offset a sharp decline in the sale of traditional DVDs. Overall, sales of packaged DVDs and Blu-ray discs declined by 3.7 percent.

Industry officials expressed optimism that growth would continue, based on sales of Blu-ray compatible devices, which are now in 42 million homes, and accelerating sales of electronic devices that use the studio-backed UltraViolet service by which consumers can buy movies that they share among several connected devices.

More than 2 million consumers signed up for UltraViolet accounts in each of this year's first two quarters, shortly after the service was made available.

Conversion to Blu-ray should be boosted by the more than 4.6 million high-definition TV sets that were sold to U.S. consumers in the second quarter, the group said, bringing to 80 million the number of U.S. households with HDTV sets.

The increase in sales of Blu-ray players and digital consumption came despite a light year for new releases into those markets, said Ron Sanders, president of Warner Brothers Home Video and DEG president. In the coming quarter, "Snow White and the Huntsman," "The Hunger Games," and "The Lorax" will be released on DVD, Blu-ray and for digital distribution.

"We're continuing to build out our ecosystem and we'll have the benefit of a strong box office," said Sanders. "We think that's some pretty good momentum."

(Editing by Peter Cooney)