DIGITAL SERVICES CREATE A NEW “GENERATION RENT” AS SUBSCRIPTIONS DOMINATE ENTERTAINMENT SPENDING FOR THE FIRST TIME

5 March 2019:  New digital services are turning the UK into a country of subscribers rather than entertainment buyers as music follows video and games to become a majority ‘rental’ market for the first time, according to figures revealed in the Entertainment Retailers Association (ERA) Yearbook, published today (March 5).

Revenues for paid-for music subscription services rose 38% in 2018 to £829m with the result that subscription now accounts for 62% of total recorded music revenues. Ownership formats like CDs, vinyl LPs and downloads now only account for 38% of revenues.

Key to the growth in people paying for access to music rather than ownership in 2018 was the work of streaming retailers like Spotify, YouTube and Deezer who continued to convert their free-tier users into paying subscribers, while Amazon introduced many more of its customers to its music streaming service - not least through the success of the Amazon Echo smart speaker.

Games first became a majority access rather than ownership market in 2016.  Video followed suit in 2017 with the rise of Netflix, Amazon Prime and Sky’s NOW TV.  This Subscription-Video-On-Demand (SVOD) sector grew by 31% in 2018 and is now responsible for over 55% of total video revenues.

Now music has joined the party to become a majority rental market.

ERA CEO Kim Bayley said, “This is a significant moment. For the first time since the birth of the modern entertainment business in the late 1950s, more revenue is coming from payments for access rather than purchase in all three sectors – music, video and games. New digital services have created a “Generation Rent” for whom access models seem natural. It is nothing less than a revolution in the entertainment business.”

At the turn of the millennium the concept of paying to access to your entertainment, rather than owning it outright, was restricted to buying a TV license, subscribing to a satellite channel and renting the occasional video from Blockbuster. According to IHS Markit, in 2001, the physical UK video rental market was worth less than half a million pounds. There were no comparable or quantifiable rental models in music and games.

Fast forward 17 years and the UK’s entertainment consumer is now spending over £4.5bn annually on accessing music, video and games, rather than paying to own it. The three sectors have adopted access models in different ways, but it means that video in particular has gone full circle – from a rental-based business at the dawn of VHS to an ownership model with DVD and now a subscription / rental model.

 

HOW RENTAL FORMATS NOW DOMINATE ENTERTAINMENT (£m)

 

Spend on access

Spend on ownership

Total

% Rental

% Ownership

Music

£829.1

£505.8

£1,334.9

62.1%

37.9%

Video

£1,469.2

£868.8

£2,338.0

62.8%

37.2%

Games

£2,251.9

£1,612.0

£3,863.9

58.3%

41.7%

 Source: ERA Yearbook

 

Said Bayley, “Innovation and investment by digital services and retailers has literally proven a lifesaver for the video, games and music businesses, creating new business models and supporting jobs across the UK creative industries.”

The ERA Yearbook has established itself as the authoritative statistical source on the UK entertainment market.

 

The internet now accounts for 85% of entertainment revenues

The ERA Yearbook confirms that UK entertainment revenues grew for the sixth consecutive year in 2018 to an all-time high of £7,536.8m, up 9.4% versus 2017.

Key to that growth was booming digital services. Digital now accounts for 76.1% of revenues. As recently as 2011 digital’s share was less than 20%.

Add in home delivery services like Amazon and around 85% of total entertainment retail revenues are now generated over the Internet.

 

Console games and vinyl are physical’s most buoyant formats

Continuing pressure on traditional physical formats is the mirror-image of the rise of digital, but together the top three physical formats – console games, DVD and CD – still generated sales of over £1.5bn in 2018.

Two physical formats stand out – console games and vinyl LPs.

Nearly £765m was spent on console games in 2018, a decline of just 2.8% year-on-year, making it the largest physical format segment across the music, video and games categories.

Spending on vinyl formats grew by a relatively modest 4.4% in 2018, but this comes after a remarkable 10 consecutive years of growth during which the vinyl album market has grown from just over 220,000 units in 2008 to more than 4.3m in 2018.

 

ENTERTAINMENT'S BIGGEST
PHYSICAL FORMATS

Format

2018 value (£m)

Games console software

£764.2

DVD

£466.9

CD albums

£289.1

Blu-ray

£130.4

Vinyl albums

£91.3

4K UHD

£19.6

Physical singles

£2.8

 

The shifting format mix has affected different retailers in different ways. Supermarkets in particular are under pressure, though they still account for around 40% of the physical video market and a quarter of physical music sales.

More buoyant are the fortunes of the independent sector, where the continuing surge in demand for vinyl has seen the number of indie record shops increase to 425 – the highest total for 12 years.

 

ENDS

 

ERA CEO Kim Bayley is available for interview

For more information please contact Steve Redmond steve@eraltd.org

 

About ERA

ERA is the trade association representing the vast majority of retailers and digital services offering music, video and games. Its members range from independent record shops (Reflex, Sister Ray) to digital services (Spotify, Google, Sky, Deezer, 7digital) to internet retailers (Amazon) to specialist High Street operators (HMV, Game) and supermarkets (Tesco, Sainsburys, Asda, Morrisons) 

ERA members supply the sales data which powers the Official Charts Company (music and video charts) and GfK Chart-Track (videogames). Together with record companies trade association the BPI, it owns the Official Charts Company. 

ERA provides the organisational force behind Record Store Day, the annual celebration of independent record stores which has become the most successful new music industry promotion of the past two decades. 

ERA works closely with its sister organisations in music, video and games and is a strong proponent of open markets, open standards and consumer choice.

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