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Netflix DVDs return mailers are shown in a mail box in Encinitas, California October 21, 2013. Subscription video company Netflix Inc added 1.3 million streaming customers in the United States during the quarter that ended in September, helping to boost earnings to 52 cents per share on Monday.  REUTERS/Mike Blake  (UNITED STATES - Tags: BUSINESS) - RTX14IZN Netflix DVDs return mailers are shown in a mail box in Encinitas, California October 21, 2013. Subscription video company Netflix Inc added 1.3 million streaming customers in the United States during the quarter that ended in September, helping to boost earnings to 52 cents per share on Monday. REUTERS/Mike Blake (UNITED STATES - Tags: BUSINESS) - RTX14IZN  

Is Physical Media In Danger of Extinction?

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Andy Patrizio
Freelance Journalist
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      Andy Patrizio

      Andy Patrizio is a freelance journalist based in Orange County, California. He has covered the technology sector for more than 20 years and primarily writes on tech news and issues, but has also covered music and entertainment.

      Andy graduated from the University of Rhode Island with a Bachelors degree in journalism, along with a minor in political science. Before taking the freelance plunge, he was a staff reporter with InternetNews.com.

You’ve seen DVD rental stores closing up shop at a rapid pace, and the DVD sales section at Best Buy shrinking. Now comes a study that confirms what you’ve been seeing: DVD sales and rentals are in rapid decline and will be surpassed by streaming video in just a few years.

PricewaterhouseCoopers (PwC) projects entertainment and media spending is going to increasingly shift to digital services and eventually surpass physical media. It expects digital entertainment – which would be on-demand streaming services from Netflix, Amazon, iTunes and others – will grow at a 12.2 percent compound annual growth rate (CAGR) between 2013 and 2018 and account for 65 percent of global entertainment and media spending growth.

The company predicts that electronic home video will surpass box office revenue by 2017 and bring in $17 billion by 2018, twice the $8.5 billion it brings in now. During that same period, physical home entertainment revenue – DVD sales – will fall more than 28 percent from $12.2 billion last year to $8.7 billion in 2018. By 2017, PwC thinks spending on streaming will surpass DVD rentals.

With the demise of Blockbuster, home video stores are teetering on extinction. Redbox now makes up about half of the DVD rental market. Redbox doesn’t waste much real estate on very old titles, and it’s in the perfect location for an impulse rental: the supermarket.

PwC notes that studios make more money per transaction than they do from DVD since it’s cheaper to distribute digital software than stamping discs, making cases and shipping them out. Streaming may not come with DVD extras, like deleted scenes, commentary tracks and alternate endings, but most people don’t care about those things.

These days, new DVD releases are handled by the theatrical team, and most new DVDs come with little to no extras. They are an investment that doesn’t pay off, according to one DVD industry watcher. “Most people just don’t care,” said Bill Hunt, who has run the DVD news and reviews site The Digital Bits since DVD first hit the market in 1997.

“Most people never look at extras. Renting a movie is kind of a whim thing and if they can’t find it, they can’t find it,” Hunt said.

The advent of DVD in 1997 created a culture of home video library collection that was unheard of in the days of VHS, because DVD didn’t degrade. With its superior video and sound, the movie was much closer to how it was in the theater.

That’s changing, according to Hunt. People no longer build libraries of DVDs. They don’t own anything.

“We’re almost back to the laserdisc days, where it’s being made for aficionados. There is a younger generation for whom streaming is more than enough and just don’t want to own media content. They are just happy to stream it and don’t have the expectation of owning movies anymore,” he said.

The result, he said, is a significant change at the studios. The home video divisions of all the major studios are all disappearing. Some have reduced their staff by two-thirds, while others have completely eliminated their home video division, Hunt said.

So when will you rent your last DVD? PwC didn’t venture to guess. Hunt figures it will be around a few more decades for people who remember and want to own physical media, but after that, it will be an on-demand world. Or whatever comes along to replace it.