DEG’s Mid-Year 2011 Home Entertainment RepoDEG’s Mid-Year 2011 Home Entertainment Repoet

August 9, 2011

The DEG is encouraged to see stabilization as we move into the second half of the year. Blu-ray Disc spending is up more than 10 percent and overall consumer spending on home entertainment is down five percent, despite a 16 percent drop in box-office for titles that entered the home entertainment window in the first half of 2011. This is notable because comparisons to last year’s sales are so highly skewed by the April 2010 release of Twentieth Century Fox Home Entertainment’s Avatar, Hollywood’s all-time box-office hit. In the second quarter of 2010 alone, Avatar sold more than 12 million discs. While Avatar’s phenomenal success a year ago makes for tough comparisons, the underlying numbers in the latest quarter showed encouraging signs. Among the trends: • Higher margin products like Blu-ray, electronic sell-through and VOD are all in growth modes, with spending on Blu-ray up more than 10 percent, electronic sell-through up four percent, and VOD up four percent over the same period last year. In total, digital transactions were up more than five percent over a year earlier. • While first quarter 2011 home entertainment spending was down 6.4 percent, second quarter spending was down only 3.6 percent, which is an especially impressive improvement considering the absence of Avatar, and a further indication of stabilization. • Meanwhile, with many Blu-ray Disc players now affordably priced at or below $100 and built for versatility so that they play existing DVDs and stream content, more homes than ever are now Blu-ray ready. • In the second quarter, the number of Blu-ray homes grew 16 percent over 2010 (inclusive of BD set-tops, PS3s and HTiBs,) bringing the total household penetration of all Blu-ray compatible devices to more than 31.6 million U.S. homes. This makes Blu-ray one of the fastest-growing new technologies in the home entertainment industry. • Further, 4.7 million HDTVs were sold to U.S. consumers in second quarter 2011. While flat over the first half last year, HDTV penetration to date is now at more than 66.8 million U.S. households. • The industry continues to manage the changes occurring in the marketplace and consumers can expect to see a number of initiatives, including Ultra Violet and Disney Studio All Access, along with applications that have yet to be announced from retailers, etailers as well as other studios in the coming year designed to improve the digital experience and increase the value of ownership. • With the enormous slate of theatrical blockbusters coming to home entertainment in the third and fourth quarters, including Transformers: Dark of the Moon, Harry Potter and the Deathly Hallows: Part 2, The Hangover Part II, Pirates of the Caribbean: On Stranger Tides, and Fast Five, the industry is extremely optimistic about the second half of the year. If you would like to discuss the DEG’s Mid-Year 2011 Home Entertainment Report, please contact the DEG.Regards, Lyndsey Schaefer Lyndsey Schaefer, Director DEG: The Digital Entertainment Group o: 424-248-3811 f: 424-248-3816 schaefer@degonline.org www.degonline.org

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