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Netflix, Blu-ray lead home entertainment back to growth

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Has the long-moribund home entertainment sector finally started to turn the corner?

Driven by significant revenue growth from subscription streaming as well as Blu-ray disc sales and rentals, U.S. home entertainment spending rose 2.5 percent to around $4.45 billion in the first quarter, according to the Digital Entertainment Group¬†(DEG), a research operation funded by Hollywood’s major studios.

It was the second out of the last three quarters that DEG talled growth for the sector — a third-quarter uptick of around 5 percent in 2011 was the industry’s first black ink in three years.

Since peaking at around $21.8  billion in 2004, the U.S. home entertainment industry has seen steady declines, descending to $18.4 billion last year.

Blu-ray, which has long under-performed in its expected role as the high-definition successor format for the aging DVD, has finally started to deliver on some of its promise. Revenue from Blu-ray sales and rentals increased 23 percent in the first quarter, according to DEG.

In fact, sales increases of Blu-ray titles almost offset the continued cratering of the traditional DVD market, with physical media sales dropping just 0.62 percent in the quarter. Overall, Blu-ray accounts for about a quarter of the sell-through disc market now. And with 2.4 million Blu-ray player devices sold in the first quarter, the format has reached 40.8 million U.S. homes.

Subscription streaming was another big driver in the quarter, with DEG tabulating a 549 percent year-to-year increase to $548.6 million. Netflix, of course, accounts for the lion’s share of this bounty,¬†reporting subscription streaming revenue of $507 million during its first-quarter earnings call last week.

As Netflix (s nflx) builds its streaming business at the expense of online disc rental, the overall home entertainment rental business has taken a hit — it was down nearly 18 percent in the first quarter.

That number would have been much worse if not for the offset provided by the red-hot kiosk rental business led by Redbox, which was up 30 percent during the three-month period. Last week, Coinstar reported 39 percent first-quarter revenue growth of $502.9 million for its Redbox division.

Of course, having in-demand titles helps — DEG reported that the total box-office performance of new home entertainment movie releases in the quarter was up 12.5 percent compared to those titles put out in the first quarter of 2011.

Meanwhile, with the DEG also providing a marketing role for the home entertainment industry’s digital cloud endeavor, UltraViolet, the group reported that the initiative now has 2 million subscribers, doubling its tally from February.