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Netflix, Redbox are bright spots for Hollywood

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Now there’s even more evidence that movie viewers are turning to rentals, not purchases, for their home entertainment needs. Subscription services like Netflix (s NFLX) and kiosk rentals from Redbox (s CSTR) were bright spots in an otherwise dismal second quarter for the big Hollywood studios.

Consumer spending on subscription video services — including DVD-by-mail and streaming video-on-demand (VOD) — grew more than 24 percent to $808.2 million, according to Digital Entertainment Group (DEG), which is made up of an assortment of studios, retailers and streaming video firms. And revenues from kiosk rentals were up 36.7 percent to $403.7 million. That growth offset declines in brick-and-mortar DVD and Blu-ray rentals, which together dropped 29 percent in the quarter, to $393 million. Altogether, the rental market excluding electronic VOD sales was up 14.7 percent to 1.6 billion in the second quarter.

That’s about the only good news in the report. Otherwise, Hollywood home entertainment posted mostly declines, especially in the sales of physical media. The sales of packaged goods — which includes DVDs and Blu-ray discs — were down 16.3 percent to $1.8 billion. Digital sales and online VOD sales were little help, with digital rentals growing just 0.29 percent to $455.9 million. And electronic sell-through actually declined 2.2 percent to $129.8 million.

The report by DEG highlights the difficult tightrope that Hollywood studios are attempting to walk, as they support growth in services like Netflix. Netflix has grown to 25 million subscribers, and is rapidly increasing the amount of money it spends to license movies for streaming. And Redbox has been growing the number of kiosks and DVDs that are available for $1 rentals throughout the country. But while there’s been growth at Netflix and Redbox, it’s mostly come at the expense of the DVD sale and rental business.

More importantly, the report shows a disturbing trend for digital sales that Hollywood is hoping to overcome with its UltraViolet initiative. Digital not only has a long way to go to make up for declines in physical media sales, but actual sales of movies online have been mostly flat. Hollywood studios hope that by launching a new format that can be bought on one platform, website, store or device and can be streamed, downloaded or burned to disc, consumers will be interested in actually owning media again.

Photo of Hollywood sign courtesy of Flickr user Sörn.