Studios tout UltraViolet as home entertainment revenue falls 2%

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Hollywood’s seven year decline in total home entertainment revenue continued in 2011, but slowed to a modest 2% drop thanks to booming business from kiosks, Blu-ray discs and the Web.

However, movie sales, as opposed to rentals, dropped 12%. That’s a problem for film studios, as DVD sales have represented their biggest source of profit over the last decade.

To address the issue, all of Hollywood’s major studios except Disney have been working with a coalition of technology companies and retailers on a new initiative called UltraViolet. To spur ownership of movies online, the technology allows consumers to store copies in a digital ‘cloud’ that can be accessed on a variety of devices.

UltraViolet had a troubled launch in October, with technology that some consumers found cumbersome because of the numerous registration steps and new pieces of software that had to be installed. Reactions on message boards, technology blogs and Twitter were overwhelmingly negative.

At a news conference Tuesday at the Consumer Electronics Show in Las Vegas, backers said that 750,000 households have registered to use UltraViolet, but admitted there were some early stumbles.

“The best way to describe the launch is we built this great house, it had an incredible foundation, and in our excitement to move in there was some finished carpentry that still needed to be done,” said Sony Pictures Chief Technology Officer Mitch Singer.

Also announced were some new developments that could help UltraViolet pick up steam. Panasonic and Samsung are both launching Blu-ray players that can read a compatible disc and automatically add the film to a user’s digital locker online.

The Samsung device will even let consumers add certain movies they bought on DVD or Blu-ray before UltraViolet existed to their online collection for what a news release described as a ‘nominal amount’ of money.

In addition, Amazon.com announced that it will soon start selling digital downloads of movies from one studio in the UltraViolet format. That’s a significant step because previously UltraViolet copies have come as codes with Blu-ray discs and DVDs and could only be accessed online with software from Warner Bros.-owned Flixster. Amazon Executive Vice President of Digital Content Bill Carr said the partnership with a studio that he declined to identify was signed in the last few days.

According to data released late Monday by the Digital Entertainment Group, total home entertainment revenue in 2011 was $18 billion, down from $18.4 billion the previous year and a high of $21.8 billion in 2004.

Among the businesses that grew significantly were Blu-ray discs at 20% to more than $2 billion, rentals from kiosks such as Redbox to $1.7 billion, and digital downloads and video-on-demand rentals, which grew a combined 7% to $2.4 billion.

Online subscription streaming, a business dominated by Netflix, hit $993 million in 2011, the first year that the Digital Entertainment Group broke out the business into its own category.

However, all of that growth was not enough to make up for the loss of $1.3 billion in spending on movie purchases, as well as a 29% drop in spending at retail stores such as Blockbuster, which shuttered hundreds of store locations last year as it emerged from bankruptcy reorganization.

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-- Ben Fritz and Dawn C. Chmielewski