C H A M P I O N I N G T H E G R O W T H O F S C R E E N E N T E R T A I N M E N T A C R O S S D I S C A N D D I G I T A L

2 017 C A T E G O R Y H I G H L I G H T S

When you have the right mix of great content, strong delivery channels, innovative retail partnerships and disruptive marketing campaigns, it’s easy to see why the home entertainment industry continues to captivate attention and deliver robust sales for UK businesses.

In 2017, delivery will be critical to the success of our industry and how agile we can be with the exciting technological opportunities up ahead.

The collective investment from across the industry into the compilation of a combined film chart with the Official Charts Company, covering all physical formats and digital downloads, is a key statement of intent for the continued and shared understanding into how our market is embracing evolution.

Robert Price Chairman, BASE Managing Director, Twentieth Century Fox Home Entertainment UK

Once again, the category saw year-on-year growth in 2016 bringing the value of the UK video market to a remarkable £2.25 billion.

“

”

£51%

of all content paid for is now rental/subscription

TRANSACTIONS

OVER237m

EST filmspurchased13mphysical

discs sold100m

2.2%growth

£2,252m

DVDDIGI

TAL

BLU-RAY

-18%

-12%+11%

TVoD

RENTAL

-21%

+33%+11%

SVoD

PHYSIC

AL

£711m

£182m

£209

m

£344m

£756m

£49m

OWNERSHIP

TOTAL VIDEO MARKET

MARKET TOP L INE

02

The video market has, for a significant period, existed in an environment of constant change, an evolution that has been shaped by technological advancements, affecting consumer behaviour and influencing their needs. And while we cannot predict the future with 100% certainty, we can use the data available to us and the insights derived from this to guide an informed vision and help us navigate the future evolution of the category.

BASE is committed to maintaining and further developing an environment to foster opportunities and to nurture the insight and ideas that will help us prepare for, and influence, the future.

We believe the key elements needed to collectively empower the category and maximise the commercial potential for each organisation are:

The mission of BASE is to create the environment for true partnerships across the industry, to incubate growth through shared knowledge and collaboration, as well as facilitate and support the implementation

of cross-industry activity to stimulate shared success.

Quite simply, we can achieve more together. We can find collective solutions to shared problems and through mutual understanding find more effective ways of working.

The ability to be agile and flexible will enable us to react to the changing demands of the consumer. And, while the advancement of independent innovation is key to cultivating a commercially competitive and diverse market, there are also occasions where relevant opportunities will arise to tackle risk and flexibility as a group, maximising the potential outcomes by minimising the risk through shared investment and resource.

Drawing and applying actionable insights from credible market data and behavioural studies is essential to promote growth. If we can evolve and share more learnings across the industry, and create a shared insight depository, we will have access to powerful tools to help all move ahead, with greater speed and efficiency.

The fragmentation of the market, the existence of multiple formats and multiple channels of delivery is our reality. An inclusive vision of the category will enable us to most effectively plan the content lifecycle and create an environment where traditional home entertainment in all its physical formats can exist, even thrive, alongside digital downloads and streaming services.

1. Collaboration and Partnerships 2. Shared Actionable Insight

3. Flexibility and Risk 4. Inclusivity

03

STATEMENT OF INTENT

An incredible variety of content captured the imagination of consumers in 2016, from big blockbuster franchises through to stand-up comedy, the latest TV series and everything in between. Content drove consumers to purchase, seeing retailers ring through £943 million in value across 100 million discs from 79,000 titles.

It was not only the fantastic diversity of content that contributed to the increase in market value, but also the flexibility in formats. This is why the emergence of combined film chart data from the Official Charts Company is an essential category development. Giving visibility of physical and digital sales in one place, it enables us to show the strength of different retail channels consumers use to purchase content, as well as providing valuable industry insights.

New data opened the door to title-specific insights, shining a light on the incredible successes of Star Wars: The Force Awakens, from Walt Disney Studios Home Entertainment, Spectre from Twentieth Century Fox Home Entertainment UK and Deadpool, also from Twentieth Century Fox Home Entertainment UK, each of which sold through over one million units and of each of these titles, more than 225,000 were digital copies.

2016 was a huge year for franchises, with the Bond franchise in particular feeling the halo effect from new release title Spectre. The 1.58 million physical sales across the Bond estate in 2016, in addition to 227,000 digital sales for Spectre, makes the Bond franchise the biggest volume franchise in the UK, life to date.

Walt Disney Studios Home Entertainment also had phenomenal success with franchise lines and more, delivering the biggest selling title of the year, with Star Wars: The Force Awakens attaining combined sales in excess of 2.3 million units.

An eclectic combination of medieval fantasy, zombies and the beauty of the natural world reigned supreme in TV in 2016, with Game of Thrones (Season Six) from Warner Brothers, The Walking Dead (Season Six) from eOne, and Planet Earth II from BBC Worldwide each generating a sales value of over £2 million (including box set sales).

CONTENT THAT LEADS THE WAY

05

Access to new combined data highlighted successes in the category, such as Twentieth Century Fox Home Entertainment UK having the greatest market share in relation to combined film sales (physical & digital), taking 21.3% of the volume market.

Universal Pictures Home Entertainment had another stellar year, with consistent performance across all genres; the breadth of content in 2016 has seen the distributor deliver something for every audience and secure the distributor an 18.5% value share of the physical market. Universal Pictures Home Entertainment also had the largest number of titles to surpass 100,000 unit sales of any distributor in 2016.

Twentieth Century Fox Home Entertainment UK led the Blu-ray market for the first time in ten years, with 20.8% volume and 21.2% value share, largely thanks to the combined success of Spectre, Deadpool, The Martian and The Revenant, all of which were listed in the top ten best-selling Blu-ray titles of 2016. The distributor also closed the year leading electronic sell through (EST) sales for film, with 21.1% market share.

Fans of action and adventure, animation and sci-fi indulged in digital formats, with these genres taking a greater share of the EST market than they did on physical. Action and adventure was +7.3% higher at 28.7% of EST, animation saw a +6.2% increase on physical, totaling 20.1% EST share and sci-fi jumped +5.9% to take 16.9% of total EST genre share. Although drama was the fourth biggest seller in the physical market with a 13.4% share, it is yet to resonate with digital consumers, taking only 6% of the market.

Staying with volume sell-through, five of the top 25 distributors from across the category saw year-on-year double digit growth. The greatest growth came from Abbey Home Media; the distributor recorded a +27% uplift, driven by its top five franchises all experiencing year-on-year growth, the biggest of which was Peter Rabbit, selling through twice as much as it had in 2015, highlighting significant strength in the children’s category.

SHARE OF MARKET

17.6%18.5% 13.8% 13.3% 8.1%

21.1%16.9%16.3%

12.7%9.3%

EST FILM MARKET SHARE

VS13m ESTFILMS 74.5mPHYSICAL

FILMS

Incl. Animated

MARKET SHARE – D ISTR IBUT ION

06

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Diversity of content, flexibility in format and innovative retail partnerships underpinned by disruptive marketing campaigns helped drive growth at retail for the video category.

High street retailer, HMV saw growth in 2016 through a combination of sales via its physical and online outlets, the highest market share seen by the retailer in the past three years.

In the grocery sector, Sainsbury’s delivered year-on-year growth to increase its share of the video market, closing the year at 11%. This was a solid result for the grocer, recording its highest category growth in four years.

The Hut Group also saw another year of growth, taking the retailer’s share to 4.6% of the overall market, more than double the 1.9% it held two years previously. The Hut Group has been extremely successful with Blu-ray, securing a 13.9% share of this market.

The combined performance of “Other” retailers led to a market share of 9.6%, showing an almost 2% point increase on 2014 figures and highlighting that consumers are taking advantage of purchasing physical product from an array of non-traditional outlets.

The digital market is also thriving across the category, just two years after its launch Sky Buy & Keep made an enormous impact, with double digit growth of +10% in 2016, which increased its market share to 32.5%, while iTunes grew +5% across the year and increased its market share to a huge 44.1%.

With Virgin Media planning to join the buy & keep market in 2017, we will no doubt see further shifts in this evolving marketplace at the end of 2017.

GROC

ERY S

HARE

- 201

6

201

5 15.5%17.5%

9.2%10.1%

11%10.4%

4.3%4.4%

ELEC

TRON

IC - S

ELL T

HROU

GH

32.5%

44.1%

1.7%

6.2%

11.4%MARKET SHARE

19.3%2015

MARKET SHARE UP

19.7%2016

MARKET SHARE – RETAI L

08

Technological advancements in digital have generated a resurgence in the rental market, with rental now representing 51% of the overall market with a value of £1.149 billion.

SVoD services are the main driver in relation to growth in rental, with an overall value share of 66% dominating the category and bringing with it a value of £775 million, a +33% increase versus 2016.

There was an emerging trend in 2016 of consumers’ increased use of internet-enabled TVs, both through the TV set itself or via an internet-enabling device, such as the Amazon Fire TV Stick, benefiting the SVoD market in particular – with SVoD services accessed via this method increasing to 40% in December vs. 34% the year before. Furthermore, there was a +7% increase in SVoD paid-for subscriptions in 2016.

Although TVoD experienced a growth of +11% in 2016, taking the value to £344 million, the market share of TVoD was adversely impacted by the growth in SVoD and saw the TVoD value share decline by -3%.

The TVoD market landscape shifted further in 2016, with Sky growing its share to 58.7% and AIV increasing its share of the market to 10.3%, an increase of +6% points on 2015.

Physical rental now only makes up 4.3% of the value in the rental market. Physical rental is dominated by Amazon owned LoveFilm, with a 64% share of market, while the second biggest market share is occupied by local libraries, which saw their share in the rental market grow by +6% in 2016, resulting in a 25% stake of the overall physical rental market.

MOREVARIETYON OFFER

79%OF TVoDSHARE

SAME PLAYERS

TVoD MARKET

91% SVoD USERS

PAID FOR SUBSCRIPTIONS

NOW ATMARKET SHARE

MARKET SHARE – RENTAL

09

LEGOBATMAN_YEARBOOK_200x200.indd 1 27/02/2017 17:53

LEGOBATMAN_YEARBOOK_200x200.indd 1 27/02/2017 17:53

Worth an incredible £1.103 billion, ownership is a fundamental part of the industry and physical sales predominantly drive this value. DVD is accountable for 67% of all volume sales, which on reflection equates to 30% of the UK population investing in this format in 2016.

Star Wars: The Force Awakens broke records by generating the biggest week one, new release Blu-ray sales, turning over 532,000 units and helping to secure the format an overall share of 16.5% in the ownership market.

While consumers remain loyal to disc, they are also enjoying exploring options for digital purchase, which is why EST continues to see year-on-year double digit growth, leaping +11% last year, bottoming out the EST share of the ownership market at 19% at the end of 2016.

First time EST has been higher than Blu-ray

VALUE SHARE OF OWNERSHIP

BLU-RAY EST DVD

BLU-RAY EST DVD

VOLUME SHARE OF OWNERSHIP

FILMS WERE SOLD13mEST

79%

11%GROWTH

EST£209m

OWNERSHIP

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Choice was again a key driver in 2016, with over 4,000 new-release titles entering the marketplace, helping to drive an uplift in the share of new-release sales in the physical market to 47% versus 44% in the two previous years.

With record-breaking Blu-ray blockbusters, such as Star Wars: The Force Awakens, and new formats entering the market with the arrival of 4K UHD, as well as consumers falling back in love with a specific genre, such as music on DVD, which saw a +23% rise versus 2015 – there really is something for everyone in the new-release market.

Q4 remains the peak season for distribution, with 28% of titles released into the market during this period and 38% of annual sales made across this three-month window.

Although the physical new-release market on DVD dipped by 12% alongside a 2.2% dip on Blu-ray, the physical new-release market is still worth an incredibly healthy £418 million.

Consumers took advantage of the improvements in home cinema technology in 2016, making the home entertainment experience even more of an occasion. To date, consumers have purchased nearly three million UHD TVs with, over the past five years, the average UK living room TV screen increasing in size from 31.7” to 40.3” – a perfect combination to enjoy some of the 100+ 4K UHD titles that are now available in the UK market.

SHARE OF MARKET2014 2015 2016

44% 44% 47% UP 3%

OCT DECTOis the busiest

time of the yearof new release sales delivered

WITH38%

PRODUCT AGE – NEW RELEASE

12

Catalogue continues to dominate the market with a 64% share of volume and a 53% share of overall value.

TV product is a vital part of the catalogue market, representing 30% of catalogue spend on physical. BBC Worldwide leads the way, with a 20% market share.

Children’s catalogue content is dominated by Walt Disney Studios Home Entertainment, with a 44% share of the £75 million genre.

DVD catalogue saw a £16 million spend shift in the category last year; of this value 33% was shifted to new release DVD, whilst 19% moved to catalogue EST. Illustrating the changing shape of the catalogue market, Transactional VoD saw 36% of shifting spend come across from catalogue physical disc in the last year.

Disney continues to lead the catalogue childrens market taking

44% MARKET SHARE

PRODUCT AGE – CATALOGUE

13

As technology shifts and morphs, it influences the habits of consumers, changing their entertainment consumption needs in relation to content delivery and as a whole, shaping consumer trends across the category.

We have seen that the male demographic has increased in relation to physical purchase (up 2.3% to 58.3%) and EST (growing by 2.5% to a share of 74.8% of download), whereas females have increased their share of the TVoD market and also the SVoD market, with a 1.9% rise from the under 19s and a 1% increase from the 45-64 female demographic.

The share of buyers in 2016 purchasing in excess of ten DVD units rose by +1.6% to 13.8% and alongside this the share of spend also increased by a greater +3.2%, to contribute 54.4% value to the category. Those that purchase ten or more Blu-ray Discs a year as well also showed an uplift in spend by +3.8% to 37.3% value, demonstrating that core buyers remain essential to the ownership model.

Those buying ten or more EST copies in 2016 remained flat year-on-year, however those purchasing two to three units increased by +3.3% last year, and those buying just one copy on EST declined by -3.8%. This illustrates that there is still flux in the market as consumers get to grips with new ways of watching and ascertain which format fits best into their lifestyle at that moment in time.

SHARE OF SPEND

BLU-RAY EST

25-34YRS

34.4%

2.8% 3.3%

DIGITAL MARKETPHYSICAL MARKET

58% OF ALL DISCSBOUGHT BY MEN 68% OF ALL DIGITAL

BOUGHT BY MEN

CONSUMERS BUYING 10 OR MORE COPIES

14%DVD

54%

5%BLU-RAY

9%EST

35-44YRS

28%

SPEND 37%SPEND 62%SPEND

CONSUMER TRENDS

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Star Wars: The Force Awakens © 2017 & TM Lucasfilm Ltd. Spectre © 2017 Twentieth Century Fox Home Entertainment LLC. All Rights Reserved. Zootropolis © 2016 Disney.

Planet Earth II © BBC 2016. Deadpool © 2017 Twentieth Century Fox Home Entertainment LLC. All Rights Reserved. Secret Life of Pets © 2015 Universal Studios. All Rights

Reserved. Game Of Thrones © 2016 Home Box Office, Inc. All rights reserved. HBO® and related service marks are the property of Home Box Office, Inc. Distributed by

Warner Home Video. Peter Rabbit™ © Frederick Warne & Co. Ltd & Silvergate PPL Ltd, 2016. All rights reserved. Beatles © 2016 Apples Corps Limited. All Rights Reserved.

Distributed by STUDIOCANAL LIMITED. Supersonic © 2016 Burnage Films Limited. All Rights Reserved. Packaging © Entertainment One UK Limited 2016. All Rights Reserved.

Billy Connelly © Rambling Man Ltd MMX. All Rights Reserved. Packaging Design © 2016 Universal Studios. All Rights Reserved. Charlotte Belly Blitz © 2014 Universal Studios.

All Rights Reserved. The Night Manager © 2016 Producciones Fortaleza AIE. All Rights Reserved. The Lady in The Van © 2015 Van Productions Limited, British Broadcasting

Corporation and TriStar Productions, Inc. All Rights Reserved. Legend © 2015 STUDIOCANAL S.A. All rights reserved. Happy Valley © Red Production Company 2016. The

BFG © 2016 Storyteller Distribution Co, LLC. Paw Patrol © 2016 Paramount Pictures. Suicide Squad © 2016 Warner Bros. Entertainment Inc. Distributed by Warner Home Video.

Stick Man © ORANGE EYES LIMITED 2015. All Rights Reserved. Licensed by Magic Light Pictures Ltd. Packaging © Entertainment One UK Limited 2015. All Rights Reserved.

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