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2018 ANNUAL REPORT

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Index INTRODUCTION

VIDEO Technology and innovation Welcome to the Entertainment can-watch buffet of have transformed home Merchants Association’s 2018 movies, TV shows, and 4 entertainment in more annual report on the business a growing roster of high- ways than any of us quality original content. of home entertainment. could have imagined 40 Consumers spent GAMES years ago, when the first an astonishing $14.6 videocassette rentals came on the market. billion on subscription streaming in 2017, 15 No longer bound by network schedules, according to IHS Markit data – a 46% jump consumers had their first taste of choice: from the prior year. And a Deloitte study RETAILING & they could watch their favorite movies on released in March 2018 shows that 55% STREAMING demand, whenever they wanted to. of U.S. households subscribe to at least one video streaming service, a 450% Today, there are more choices than ever. 25 increase since 2009. Consumers can watch their movies and TV programs at home, on giant TVs, or on the This proliferation of platforms and devices, MARK FISHER go, on tablets or smartphones. They can and shift from physical to digital, is Q&A game on consoles or over the Internet. mirrored on the video game side of the For those who prefer to purchase and own business, which in the alone 38 the latest motion picture and television generated a record $36 billion in revenue content, options abound. They can buy in 2017, up 18% from 2016, according to movies on physical discs for data from the Entertainment Software EMA OVERVIEW possible viewing experience, particularly Association (ESA) and The NPD Group. 40 on the dazzling new 4k Ultra HD format This report provides a comprehensive – or they can buy digital copies and keep overview of the home entertainment them safely stored in their own Movies business and closely examines the home Anywhere “locker.” video, video game, and retail components. For those who just want to watch movies In the following pages you will read about and television shows, they can rent the proliferation of delivery options in both digitally as well as physically, with video and gaming, the surge in streaming a vast assortment of content available for and the push toward original content, the viewing on the Internet, thanks to a broad changing face of retail, and the latest spectrum of retailers, as well as on disc, on new technologies like VR. courtesy of a still-growing army of The Entertainment Merchants Association kiosks and thousands of remaining video is proud to represent an outstanding group rental stores. of retailers, distributors, content providers, The surge in subscription streaming service and technology companies, and continues to revolutionize (and from others involved in bringing entertainment, a business-model perspective, challenge) both passive and interactive, directly to home video, with its appealing all-you- the consumer.

Mark Fisher President and CEO Entertainment Merchants Association ema 2018 Annual Report 4 VIDEO

provision to the Copyright Act of Walmart, and consumers switching Overview 1976, which gives the owner of a from renting movies for the night The home entertainment indus- copyrighted work the right to “dis- to buying them. Meanwhile, the vid- try turned 40 in 2017. It was in 1977 tribute copies …. of the copyrighted eocassette rental business was in that a Detroit businessman named work to the public by sale or other a state of decline. Blockbuster and Andre Blay licensed 50 movies from transfer of ownership, or by rental, other retailers cut “revenue-sharing” 20th Century Fox and released them lease, or lending.” And none of the deals with the studios so they could on videocassette under the Magnet- bills ever made it into law. bring in more copies of the hits at ic Video banner. He offered them The video rental business soared a lower price and then share the for sale to the public through a di- throughout the 1980s and early spoils with the studios on the back rect-mail sales operation he named 1990s. At one point there were more end, satisfying more customers. Video Club of America, and ran than 50,000 separate video rental But with consumers now able to in TV Guide. stores, most of them independents, buy movies at an affordable price, VCR prices had just dropped be- generating billions of dollars from the DVD sellthrough business flour- low $1,000, and a feeding frenzy en- consumer rentals. Over time, the in- ished. By 2004 consumer spending sued. Blay’s club, spurred by interest dies were gobbled up by fast-grow- on hit $15.5 billion, a whopping in films like “The Sound of Music,” ing chains like Erol’s and National, 33% gain from the year before. “Patton,” and especially “The French although ultimately an outfit out Eventually, however, the novelty Connection,” quickly grew to more of Texas called Blockbuster Video wore off – just as it had, in the early than 9,000 members, and by the end would conquer much of the country 1990s with video rental. And with the of the year he had sold upwards of with its ubiquitous blue-and-yellow advent of high-definition TVs studios 250,000 videocassettes. motif and “Make It a Blockbuster realized they needed a high-defini- Within three years, most major Night” tagline. tion disc to compete. Unfortunate- studios were releasing their own All the while, studios kept their ly, two competing formats came to films on videocassette, but their at- eye on “sellthrough,” the concept of market, and while Blu-ray Disc ulti- tempts to sell them at prices as high selling movies directly to consum- mately trounced HD-DVD, consumer as $75 were trumped by savvy entre- ers. were sold to retailers for confusion – as well as reluctance by preneurs who were buying cassettes upwards of $100 each, and then re- movie collectors to rebuy their home and then renting them to the public priced to $30 or $20 six months later libraries – stifled disc sales growth. for a few dollars a day. The first video for sale to the public. But sales were Adding to the slowdown in disc rental store is believed to have been modest until the 1997 launch of DVD. sales was the emergence of digital operated by George Atkinson in Los The DVD’s size was more compact, delivery options. Consumers had Angeles. Atkinson charged $50 for an the picture and sound were better, become accustomed to buying their annual membership, which provided but most importantly the price was music over the Internet – so why not the opportunity to rent videos for $10 low. With the DVD, studios took movies? Then, in 2007, aug- a day. square aim at the sellthrough busi- mented its discs-by-mail business by The studios tried to clamp down on ness by pricing movies at $20 or $30 offering its subscribers the chance to rentals by placing restrictive warn- out of the gate, not six months down “stream” movies and TV shows over ing labels on cassettes, and even the road. the Internet – and, as they say, the presented the issue to Congress for The DVD was successful beyond die was cast. resolution through a series of bills anyone’s wildest expectations. For Today’s home entertainment busi- that would have made the rental nearly years, the DVD powered ness is no longer dominated by of prerecorded copyrighted video- the sellthrough business to record a single format or business model tapes an infringement of copyright heights – with studios striking up – or a single device, for that mat- law. Video rental dealers protest- direct sales deals with big nation- ter. Streaming is in the lead, but ed, citing the so-called “first sale” al chains like , Target, and disc sales – both DVD and Blu-ray ema 2018 Annual Report 5 Disc – remain an important com- For the third consecutive year, dig- VIDEO ponent, as is rental, both disc and Content ital spending has outspaced spend- digital. So, too, are digital sales of Home entertainment spending in ing on physical media. Total digital movies, spurred by early release 2017 came in at an estimated $25.3 spending came in at an estimated windows. And whereas consum- billion, up 17.6% from 2016, accord- $18.1 billion, or more than 70% of ers once watched movies and other ing to figures compiled by IHS Markit. total consumer home entertainment filmed content exclusively on their As expected, the gains came large- spending. In 2016 digital spending TVs, thanks to Internet connectivity content today is consumed on a vari- ly on the digital side, with total digi- came in at an estimated $13.2 billion, ety of devices, including PCs, smart- tal spending up 37% to $18.1 billion 61% of the total home entertainment phones, and tablets. – but with a caveat. spend of $21.5 billion. Accordingly, the definition of home The majority of digital spending Digital spending is dominated by entertainment has changed. It’s no growth came from subscription SVOD, whose growth is fueled by so- longer just physical content consum- streaming, or subscription vid- called “cord cutters,” consumers who eo-on-demand (SVOD), with con- ers bring into their homes. Home are pushing back on the high cost of sumer spending spiking 46% to an entertainment today encompasses traditional cable and satellite ser- the entire spectrum of personalized, estimated $14.6 billion – although vice by canceling their subscriptions. on-demand content delivery – any IHS Market cautions that one reason A March 2018 report from Leichtman business involved in bringing enter- for the big jump is that it is now in- tainment to the consumer, from the cluding a broader spectrum of OTT Research Group (LRG) says the larg- traditional transactional model to services, including Prime, est U.S. pay TV providers lost nearly Netflix and its fellow OTT streaming whereas in the past the streaming 1.5 million subscriptions in 2017, services and, down the road, premi- revenue figure was based primarily almost twice as many as they lost um video-on-demand (PVOD). on Netflix. in 2016.

HOME VIDEO MARKET SPENDING 2012-2022 $38.0 ($ Billions) $36.6 $1.2 Disc Rental $34.9 $32.8 $1.4 $3.2 Disc Retail $1.6 $3.4 $29.6 $30.2 $1.9 $3.7 Online Subscription $27.8 $4.1 Digital Rental $2.1 $25.8 $25.3 $4.4 Digital Retail $23.2 $2.3 $21.5 $20.0 $19.0 $4.8 $17.7 $18.0 $18.2 $2.7 $3.2 $5.5 $4.7 $4.2 $3.6 $14.6 $6.1 $6.9 $7.6 $8.2 $10.0

$6.6 $5.2 $4.1 $3.2 $1.0 $1.1 $1.4 $1.5 $1.5 $1.5 $1.6 $1.7 $0.8 $0.8 $0.7 $2.1 $2.1 $2.1 $2.2 $2.2 $2.3 $2.3 $2.4 $0.9 $1.3 $1.7 2012 2013 2014 2015 2016 20201717 2018 2019 2020 2021 2022 projected Source: IHS Markit ema 2018 Annual Report 6 Wars Story” ( Studios); and sound as Blu-ray Disc, but only

VIDEO PHYSICAL DISCS IHS Markit estimates that con- “Beauty and the Beast” (Walt Disney if the bandwidth is available. During sumer spending on DVDs and Blu- Studios); “Wonder Woman” (Warner times of high viewing demand, and in ray Discs continued to drop in 2017, Bros. Home Entertainment); “Trolls” regions of the country where band- coming in at $7.1 billion – down 13% (DreamWorks Animation, Twentieth width is still limited, streaming view- from 2016. Century Fox Home Entertainment); ers still have to contend with lower “Sing” ( Home quality – sometimes even lower than But while disc sales may be down, Entertainment); “Guardians of the that of the VHS videocassette. the format is far from out. While Galaxy Vol. 2” (Walt Disney Stu- The steady decline in disc sales worldwide disc sales are expected to dios); “Fantastic Beasts and Where also is being driven largely by DVD, shrink to $9.1 billion by 2020 – from to Find Them” (Warner Bros. Home which unlike Blu-ray Disc is not $18 billion in 2016, the latest year Entertainment); “Logan” (Twenti- a high-definition format. The IHS for which estimates are available, eth Century Fox Home Entertain- Markit does not break out numbers, according to Futuresource Consult- ment); and “Doctor Strange” (Walt but observers believe the drop in ing – that’s still a significant amount Disney Studios). Blu-ray Disc sales is much smaller of revenue and suggests packaged Experts also agree that, outside than the overall disc-spending de- media will continue to live alongside of theaters, Blu-ray Disc remains cline. Indeed, as recently as the first . the way to watch movies nine months of 2016, Blu-ray Disc Among the best-selling titles over- or other programs in terms of pic- sales actually nudged upward by an all for 2017 were: “Moana” (Walt ture and sound quality. Streaming estimated 8%, according to NPD Vid- Disney Studios); “Rogue One: A can provide nearly as good a picture eoScan point-of-sale data.

2017 CONSUMER VIDEO SPENDING 2017 DISTRIBUTOR VIDEO REVENUES

13% 20% Digital Box Office Video*** 23% 36% Physical Video* Digital Video*** Video 5% Rental 10% 35% Video Retail Pay TV Premium** 30% Box Office 4% 25% TV TVOD/ Pay TV Premium* TV SVOD**

Total Spending ($m) = $50,310 Total Revenues ($m) = $17,462

Notes: *Pay TV Premium includes Cable/IPTV/Satellite. Notes: *Physical Video includes disc retail and disc rental. **Includes cable, satellite, and telco VOD (TV TVOD) as well Pay TV subscription VOD (TV SVOD). **Pay TV Premium includes Cable/IPTV/Satellite. ***Digital Video includes Digital rental (iVOD), Digital retail (EST), and Digital Subscription (SVOD). ***Digital Video includes Digital rental (iVOD) and Digital retail (EST). Source: IHS Markit Source: IHS Markit

ema 2018 Annual Report VIDEO SPENDING - PHYSICAL vs. DIGITAL 7 O 4K ULTRA HD BLU-RAY DISCS 2011 - 2017 VIDEO The decline in disc sales also may Digital Spending be mitigated by the arrival of the 4K Physical Spending Ultra HD Blu-ray Disc, which came to market in 2016. Initial sales outpaced those of Blu-ray Disc a decade earli- 22% 28% 35% 42% 49% 51% 67% er, according to estimates from DEG: 78% The Digital Entertainment Group. 72% 65% And by the end of 2017, the number 58% 51% 49% of 4K Ultra HD titles in the market had grown to 267 titles, represent- 33% ing some $147 million in sales – a growth rate of 187% over the 2011 2012 2013 2014 2015 2016 20201717 prior year. Based on data from DEG: The Digital Entertainment Group 4K Ultra HD Blu-ray Discs also include high dynamic range (HDR), In 2017, consumer spending on still has about 3.4 million subscrib- which gives them even sharper pic- disc rentals at kiosks, a market dom- ers to its disc-rental-by-mail busi- tures and more realistic colors than inated by Redbox, slipped 16% to an ness – down 186,000 since the third standard high-definition – and an estimated $1.3 billion, although the quarter, 731,000 from Q4 2017, and even greater edge over the limita- a whopping 16.6 million from its 2010 tions of streaming decline may be arrested by a reju- venated push by the Seattle-based peak of about 20 million. “We can expect to see the num- vending machine operator to boost The company has 17 DVD distri- ber of 4K UHD Blu-ray titles to ex- its fleet of bright-red rental kiosks. bution hubs around the U.S., down pand considerably in 2018, as con- During 2017, Redbox added 1,800 ki- from 50 in mid-2016, and a former tent companies continue to release osks, bringing the total number up to employee told CNBC that internal new and catalog titles in the pre- more than 41,000. projections see DVD.com, the Netflix mium format,” Universal Pictures division that delivers rental discs by Home Entertainment president Ed- Redbox’s fortunes also may be mail, surviving until 2025. die Cunningham told Media Play helped by new content deals with News in January 2018. “As well, 4K , , movies, TVs and players are sell- Pictures Home Entertainment, 20th DIGITAL ing units in record numbers. There Century Fox, Universal Pictures, With two-thirds or more of consum- is a clear groundswell around con- and Warner Bros. The deals call for er spending now directed toward the sumer demand and the industry is same-day availability of new releas- digital delivery of movies, TV shows, highly optimistic about the format’s es – a big break from the recent past, and other filmed content, it is clear future prospects.” when Fox, Universal, and Warner that a growing number of consum- imposed a 28-day holdback because ers prefer the ease and simplicity of O DISC RENTAL they feared rental kiosks outside accessing content over the Internet. With the growing popularity of big disc sellers like Walmart would This is especially true when this ease streaming, the traditional video cannibalize sales. of use is also the least expensive way rental business continues to suffer to go, as is the case with subscription even more drastically than disc sell- Subscription disc rentals, the busi- streaming, with consumers able to through. According to IHS Markit’s ness that got Netflix off the ground watch as much content as they want year-end 2017 report, total consum- two ago, also remains a sig- for pennies a day. nificant business, despite steep and er spending on video rental dropped But there are limitations to stream- steady declines. DEG estimates that 15% in 2017 to $2.3 billion. ing, most notably the lack of newly in 2017, subscription disc rental rev- Rentals at brick-and-mortar video released hit movies, which stu- enue slipped 17%, to $455 million. rental stores took the biggest hit, dios are keeping for transaction- dropping 20% in 2017 to an estimat- In a January 2018 fourth-quarter al sales or rentals, and the lack of ed $390.4 million, according to DEG. earnings release, Netflix revealed it catalog breadth. ema 2018 Annual Report Streamed SVOD service 76%

8 Purchased on DVD (excl. Blu-ray) 47%

VIDEO Rented DVD/BD rental kiosk 44%

Paid VOD or Pay-Per-View 37% Purchased DVD/BD 37% Rented digitally (exc. subscription service) 35% Streamed ad-supported service 34% HOME ENTERTAINMENT Purchased on Digital (to own) 31% MOVIE ACTIVITY INSTANCE Streamed/downloaded from Bit Torrent or other free site 29% Rented DVD/BD through a subscription service 27% - Q4 2017 (OCT-DEC 2017) Purchased on 4K UHD Digital 21% Purchased on 4K UHD Disc 4% Source: Screen Engine

OELECTRONIC SELLTHROUGH (EST) Electronic sellthrough is the most promising bulwark the studios have Will Movies Anywhere be the spark that finally brings digital movie against soaring subscription stream- sales to the masses? The digital movie sales and rights-locker stor- ing growth, but there are challenges. age service launched in October 2017 with support from five of the six The chief one is explaining the value major studios (all but Paramount), four of the biggest online retailers, proposition. Consumers accustomed and an opening library of more than 7,300 movies. to spending around $10 a month for Two months later, at the January CES in Las Vegas, GM Karin Gil- unlimited Netflix viewing might be hes- ford announced that consumers’ accounts have accumulated nearly itant to spend the same amount, or 80 million movies. In March 2018 Gilford updated that figure to 100 more, for a single movie or TV show, million movies. even if they would own it. One reason there’s so much optimism for Movies Anywhere is the The EST market has been flat the coalition behind it. The service launched with support from four of past several years. Total spending on the biggest digital retailers, Amazon Video, Play, iTunes, and digital content sales for 2017 is pegged Walmart-owned , with movies from Disney (including , by IHS Markit at $2.1 billion, the same , and ), , 20th Century Fox Film, Uni- as in 2015 and 2016. Notably, the EST versal Pictures, and Warner Bros. In March 2018, Movies Anywhere added a fifth retailer, FandangoNow, which is available on more than market was less than 15% of what 200 million connected devices. consumers spent on Netflix and other streaming services during the year. “It’s great to have so many of the major studios and digital retailers participating in a shared entitlement system, which fulfills the prom- Studios for years have given titles an ise of making digital ownership easier and more accessible to con- early exclusive release window, with sumers,” Jim Wuthrich, president of the Americas and global strategy the digital version becoming available for Warner Bros. Home Entertainment, told Media Play News in Feb- up to three weeks before the DVD and ruary 2018. “Because of its wide availability and ease of use, Movies Blu-ray Disc. They’ve also begun of- Anywhere has quickly and successfully been adopted by consumers fering extra content and special fea- and we look forward to the system’s continued growth.” tures, previously available only on Ease of use is another reason for Movies Anywhere’s success. The physical disc. service is centered on an app, which takes consumers to a simple So far, however, there’s been no and visually appealing interface that lets them buy movies — or re- magic bullet – until the launch last fall deem codes included with Blu-ray Discs — from their selected digital of Movies Anywhere, a digital content retailer’s store with the touch of a finger. Purchased films pop up in- storage service backed by five of the stantly, and stored in the cloud, are available for immediate viewing six majors that observers believe may on any connected platform, from the phone to the home TV. Movies be the badly needed catalyst to really can also be downloaded for offline viewing when there is no Internet drive EST. connection available. ema 2018 Annual Report 9 OSVOD: SUBSCRIPTION Households worldwide paying OTVOD: TRANSACTIONAL VIDEO VIDEO-ON-DEMAND, OR for streaming video services ex- VIDEO-ON-DEMAND SUBSCRIPTION STREAMING ceeds 250 million, according to data Transactional video-on-demand Subscription streaming, or sub- from Strategy Analytics released in (TVOD) is the a la carte option to the scription video-on-demand (SVOD), February 2018. The firm predicts the all-you-can-consume buffet that is is home entertainment’s dominant number of homes paying for SVOD streaming and is equivalent to digital force – and undisputable growth en- services such as Amazon Prime Vid- rental. Instead of paying a monthly gine. The unique over-the-top (OTT) eo and Netflix will reach about 300 subscription fee for unlimited view- distribution practice, made possi- million by the end of 2018 and more ing of whatever’s available, consum- ble by greater bandwidth, allows than 450 million by 2022. ers pay for access to a certain title, which they can then watch within 24 streaming content providers to sell Strategy Analytics says average or 48 hours of initiating viewing. their services directly to consumers monthly household spending on over the Internet, bypassing tradi- SVOD increased 5% in 2017 to $9.46, IHS Markit estimates that consum- tional cable service providers. with total number of subscriptions er spending on TVOD grew 27% in 2017 to $1.4 billion. With Redbox, the Netflix birthed the business in 2007 reached 345 million by the end of 2017. leading disc rental service, entering as an outgrowth of its popular disc- the TVOD market last December with by-mail rental service, in which con- Households paying for streaming its Redbox transaction- sumers could watch as many movies video used on average 1.39 ser- al service, the segment’s prospects as they want for a monthly subscrip- vices, with the United States having look even brighter for 2018. tion price. Moving this model over the highest penetration of SVOD, as In March 2018, new data from TiVo to the Internet eliminated the costly 59% of households reported using at suggests better times may lie ahead shipping and handling expenses of least one service at the end of 2017. for TVOD. A survey of 3,000 respon- mailing physical product. And it ap- Parks Associates in November dents found that 37.3% purchased pealed not just to movie renters, but 2017 said there are now more than from TVOD services in the fourth also to cable customers who were 200 OTT services in the United quarter of 2017, an increase of 4.6% becoming tired of expensive bun- States, twice as many as 2014, with from Q3. Of these TVOD users, 79.6% dles with hundreds of channels, only 87% of them offering some type of said they spend money on a transac- a few of which they really wanted. subscription option. In March 2018, tion monthly, up 3.1% from Q3 – and Netflix got its foot in the door by Parks Associates said its research 79% watch content on a weekly ba- paying generous prices for movies, finds more than one-third of U.S. sis, an increase of 8.7% from the pri- and when studios realized stream- broadband households subscribe or year. ing was eating into the disc business to multiple OTT video services, in- OAVOD: ADVERTISING-SUP- it was too late. Netflix had a perch cluding 15% subscribing to three PORTED VIDEO-ON-DEMAND from which to grow, and grow it did, or more. Some OTT service providers look shifting focus to TV series and origi- In March 2018, TiVo revealed to advertisers rather than subscrib- nal episodic content when the movie that, in a survey of 3,000 individuals ers for revenue. YouTube is the best- pipeline began to dry up. during the fourth quarter of 2017, known, with 1.5 billion monthly active In 2017, subscription streaming 68.2% of respondents said they use users, according to an October 2017 generated an estimated $14.6 bil- an SVOD service. Also in March, infographic from Filmora, which spe- lion in consumer spending, a 46% a study from Deloitte revealed that cializes in film editing. jump from the prior year, according 55% of U.S. households now sub- Another popular site is Sony to IHS Markit data. The big jump is scribe to at least one video stream- (prior to January 2018, just due in part to IHS Market now factor- ing service, a 450% increase since Crackle), a free, ad-supported video ing in and oth- 2009. The Deloitte study also found streaming service owned by Sony er OTT service providers, but even that the average streaming video Pictures Home Entertainment. It of- a year earlier, when SVOD estimates subscriber is paying for three ser- fers original web shows, movies, and were primarily Netflix numbers, IHS vices, resulting in U.S. consumers TV shows, including the series “Dam- Markit reported a 52% gain in spend- collectively spending $2.1 billion per ages,” “Rescue Me,” “Seinfeld,” and ing over 2015. month on SVOD services. “The Shield.” ema 2018 Annual Report 10 Walmart in late 2016 launched VIDEO a free, ad-supported VOD service, Vudu Movies on Us, that offers high-definition movie and TV ti- tles in 1080p high definition with pre- and mid-roll advertising. The move was triggered by internal re- search that showed more than half of Walmart shoppers prefer free ad-supported video-on-demand to subscription services. used to offer a free ad-sup- ported option to its SVOD service, Moana, from Walt Disney Studios, was one of 2017’s top-selling home entertainment releases. but discontinued it in August 2016. (Photo courtesy Walt Disney Studios)

OPVOD: PREMIUM VIDEO-ON- Studios also like PVOD because toward direct-to-video and made- DEMAND they believe it would reduce piracy, for-video originals to complement its Premium Video-on-Demand (PVOD) due to the immediate availability of core diet of theatrical movies, digital generated a big buzz in 2016, as stu- films for home viewing. distributors are on an original-con- dios began talking about a premium And yet resistance from theater tent feeding frenzy. home video window in which movies owners to PVOD remains high, de- Fueled by escalating competition air shortly after, or even on the same spite offers of revenue-sharing. Ob- in the SVOD arena, service provid- day, they open in theaters. PVOD servers say the concession factor is ers are either buying up existing employs a pay-per-view model that a big reason – movie theaters gen- product or producing their own pro- would let consumers pay perhaps gramming, mostly episodic series $30 to $50 per movie to see films erate up to 85% of their profits from designed to keep viewers hooked. three months or more before they sales of popcorn, super-sized Cokes would normally become available for and other snacks. In January 2018, Netflix got the proverbial ball roll- home consumption on digital or disc. Celluloid Junkie reported that AMC ing five years ago with “House of Entertainment Group, the nation’s Cards,” the intense political drama An August 2017 report from Mor- largest theater chain, had backed that debuted in February 2013. Since gan Stanley estimates that PVOD off talks with studios about PVOD. then, virtually every digital distribu- could boost studio revenues by $2 “To date, nobody has found a model tor has been stepping up its original billion annually - with minimal in- that works,” the article said, “and to content offerings, with Netflix last cremental costs. Benjamin Swin- hear [AMC CFO Craig] Ramsey tell it, burne, who covers media for Morgan year vowing to ultimately air 50% we shouldn’t expect a PVOD break- Stanley, said, “The desperation level original programming. Netflix re- through anytime soon.” in Hollywood is at new highs and leased an estimated 126 original se- a broader attempt at driving PVOD Two months later, in March 2018, ries or films in 2016, more than any seems almost inevitable.” AMC CEO Adam Aron effectively pro- other network or cable channel. And nounced PVOD dead. On an earn- in March 2018, CEO Reed Hastings This desperation comes, in part, ings call, he said PVOD could only said the company will spend $8 bil- from steadily declining movie-the- happen if “our shareholders’ inter- lion on original content this year. ater admissions and revenues. Bloomberg, citing the latest esti- ests” were fully compensated. AMC Netflix is hardly alone. mates from Box Office Mojo, in Jan- is looking at PVOD alternatives with Amazon Prime Video, No. 2 in the uary 2018 reported that 2017 was studios to grow the fiscal pie for all subscription streaming arena, is ex- the worst year for ticket sales since parties involved. pected to spend $5 billion on origi- 1992, with admissions dropping from nal content this year, according to 1.32 billion to 1.24 billion – and do- ORIGINAL CONTENT JPMorgan’s Doug Anmuth. In March, mestic box-office revenues falling Much like the home video indus- Zacks Equity Research said Amazon from $11.4 billion to $11.1 billion. try in its early days began looking is “reportedly planning to expand ema 2018 Annual Report 11 its reach in India, particularly in based on your viewing history, the as well as established studios like the Southern part, by offering orig- time of day, and even the places on Felix & Paul, Oculus, and Within. VIDEO inal regional content in Tamil and your screen that get clicked most There was even an element of star Telugu languages.” frequently when you search for your power, including Rosario Dawson In September 2017, Hulu CEO Mike next binge-watch. When you click and Maria Bello. Hopkins said the streaming service’s through the ‘Because You Watched’ On the home entertainment front, row, a video-to-video similarity al- content budget for 2017 was around the focus isn’t so much on creating gorithm compares everything in the $2.5 billion. Hulu also won eight new “experiences” as it is on en- Netflix library. Scrolling through spe- Emmy Awards for its original series hancing the overall consumer home cific genres automatically ranks titles “The Handmaid’s Tale.” entertainment experience. FoxNext, based on a personalized video-rank- a new division at 20th Century Fox, CBS All Access also has its eye ing algorithm…. Each person’s Netflix in February 2018 announced its first on original programming, with the landing is unique, and the more you virtual reality game, “Crisis on the Hollywood Reporter saying the CBS- browse, the smarter your personal Planet of the Apes” VR, set between owned OTT service is promising six Netflix robot gets. Netflix’s AI uses the “Rise of the Planet of the Apes” or seven new original programs over your viewing profile data to enhance and “Dawn of the Planet of the Apes” the next 12 months. CBS COO Joseph future suggestions, which helps with movies, with the user cast as an in- Ianniello, speaking at the Deutsche retention; the company estimates telligent ape. Bank Media & Telecom Conference, that its algorithms save over $1 bil- said CBS is “doubling down” on its lion a year by keeping customers “Crisis on the Planet of the Apes” investments in originals. hooked. This kind of revenue genera- VR launched April 3 on PlaySta- tion VR, Oculus Rift, and HTC Vive YouTube Red and the PlaySta- tion has launched the tech world into for $14.99. tion Store also have original con- a veritable arms race to improve AI tent available. functionality, bringing us closer and “VR has always held the promise closer to true artificial intelligence.” of bringing together the cinematic NEW TECHNOLOGIES storytelling of film and the deeply O ALTERNATE ‘REALITIES’ immersive interactivity of games,” O ARTIFICIAL INTELLIGENCE Virtual reality (VR) and its sis- said Brendan Handler, SVP and GM Artificial intelligence might not ter technologies, augmented real- of the FoxNext VR Studio. “Crisis on have an impact on what you see on ity (AR) and mixed reality (MR), are the Planet of the Apes VR takes this your screen, but it is already influ- generating the biggest buzz in the potential to the next level.” world of gaming. With VR, you can encing what you watch. Artificial in- Danny Kaye, who runs the studio’s fight alongside Batman or drive the telligence is the ability of a computer Fox Innovation Lab, told Media Play Batmobile. With AR, the Batmobile program or a machine to mimic hu- News in March 2018 that his focus crashes out of your living room wall. man cognition, to “think” and “learn.” “is on the living room experience, the VR is more immersive, but AR pro- mobile experience, of filmed enter- The concept has been glorified in vides more freedom, largely because tainment” – and in using new tech- films ranging from “The Terminator” it doesn’t require a headset. And MR nologies such as VR and AR to im- and “Total Recall” to “Blade Run- is a mix of reality and virtual reali- prove and enhance that experience. ner” and “WarGames,” but in prac- ty, encompassing both augmented tical terms it has effectively made reality and augmented virtuality via Hollywood smarter. Fueled by big immersive technology. data and analytics – the discovery, At the in interpretation, and communication January 2018, the New Frontier ex- of meaningful patterns in data – big perimental section – which featured entertainment companies like Netflix its first VR experience in 2012 – in- have built algorithms that predict cluded more than 20 virtual and aug- what you’ll want to watch next. mented reality entries, ranging from Venture Beat observed in October simple mobile 360-degree video to 2017, “Netflix’s algorithms are enor- multi-person performance art instal- Crisis on the Planet of the Apes mously complex, offering selections lations. They came from newcomers (Photo courtesy 20th Century Fox) ema 2018 Annual Report 12 “One of the things we try to work

VIDEO SCREENS on, for example, is how do you use Hardware Consumers may be cutting the a mobile device in AR to increase the With the divide between the living cord with Pay TV, but they still prefer value of the experience. Let’s say, for room and the computer ancient his- the big screen to any other viewing example, that you’re watching a NA- tory, consumers are enjoying their device. Data released by Nielsen in SCAR race on TV, and you’re not just home entertainment on a wide va- May 2017 found 92% of all viewing riety of devices, from lavish home seeing what you’re looking at on the among U.S. adults (18 and older) still theater setups to PCs, smartphones, TV, what the cameras are showing, takes place on the TV screen. but if you have a tablet or phone you and tablets. Nielsen measured viewing min- can have a whole different experi- Streaming has given birth to utes in the fourth quarter of 2016, ence – a different perspective on the a whole new industry of streaming comparing TV screen-based view- race. You could have the perspective media devices, with Amazon, Apple, ing to viewing on PCs, smart- of being in the pit, with an overlay of Google, and in the lead. phones, tablets, and other TV- all kinds of interesting data about Interconnectivity is the key word, connected devices. the driver, about the car, and just and most devices now may be used by pointing the device at different for multiple purposes. The Sony PCs accounted for just 5.1% of objects on the screen that data will PlayStation and Microsoft can video-watching minutes, with smart- pop up. be used not just to play games, but phones and tablets trailing at 1.8% also to play Blu-ray Disc movies and 0.7%, respectively. “And we have to think of similar and stream media. Set-top Blu-ray In March 2018, Netflix said 70% of things in filmed entertainment, and Disc and 4K Ultra HD Blu-ray Disc its streams end up on connected TVs that’s where things like mixed re- players also double as streaming ality come in – where you have the media players. instead of PCs, phones, or tablets. potential to have an experience sim- And smartphones, viewing devices Research from the Consumer ilar to virtual reality, but instead of in their own right, are a convenient Technology Association (CTA) re- being completely in a virtual world, way to redeem digital movie codes leased in January 2018 projects isolated from your surroundings, through the Movies Anywhere ser- that unit sales of total digital dis- you’re also seeing your own environ- vice, with purchased movies instant- plays in 2018 will reach 44.2 million ment and overlaying other environ- ly popping up on the home TV or any units and $22.1 billion in revenue, ments through the lens of a headset.” other connected device. a 2% gain over 2017.

PRIMARY ENTERTAINMENT DEVICE Total - All age groups Q: What is your primary medium for 42% Millennials - Ages 18-34 entertainment? Select only one. Plurals - Ages 6-17 34% 31% 27% 25% 20% 16% 16% 11% 13% 12% 8% 8% 8% 9% 8% 4% 4%

TelevisionTelevision Laptop/PCLaptop/PC SmartphoneSmartphone VideoVideo Game Game ConnectedConnected TabletTablet ConsoleConsole TVTV Device Device Source: Frank N. Magid Associates ema 2018 Annual Report STREAMING MEDIA PLAYERS BRAND SHARE BY INSTALLED BASE - Q3-2017 13 O 4K ULTRA HD TVS VIDEO When it comes to quality, nothing Q: How many of the following types beats 4K UHD technology, with pic- 37% of streaming media players does tures four times clearer than - your household use? dard high-definition. But 4K’s trump 26% card isn’t just more pixels, but also better pixels. High Dynamic Range 15% 15% (HDR), Wide Color Spectrum and Immersive Audio now combine with 8% 4K resolution to deliver to home viewers a movie-watching experience closer to the theatrical experience Roku Amazon Apple Google Other than ever. Source: Multiple surveys: American Broadband Households and Their Technologies. For the first time, 4K UHD TVs will Source: Parks Associate make up half of all total digital dis- plays sold in 2018, with unit sales THE CONNECTED TV PlayStation and Microsoft’s Xbox, forecast to hit 22 million units — With Netflix and other OTT services and a growing number of streaming a 27% increase from 2017 — and using the Internet rather than cable media players that range from set- revenue generated from 4K UHD TV or satellite to deliver content, con- top boxes to portable “sticks” that sales is projected to hit $15.9 billion nectivity has become the rule rather are plugged into the TV. in 2018, up 14% from 2017, accord- than the exception. Among the most popular are ing to research from the Consumer Amazon’s Fire TV and Fire TV Stick, Technology Association (CTA). According to Nielsen’s Q2 2017 To- tal Audience Report, released in No- the Apple TV, Google’s Chrome- And more content is becoming vember 2017, nearly 70 million U.S. cast, the NVIDIA Shield TV 16 GB available for consumers to watch in TV households have their screens Streaming Media Player, and Roku’s 4K UHD. 4K UHD Blu-ray Disc re- connected to the Internet, a 12% Streaming Stick and Express Stream- mains the optimum delivery method spike from June 2016 to June 2017, ing Media Player. for this content, but streaming and when the Nielsen measurement was According to Nielsen, 58.7% of TV digital download services such as taken. Smart TVs, which due to built- homes in the U.S. now own at least Amazon, Apple, Netflix, and others in connectivity don’t need a second- one Internet-enabled device capable are now also offering 4K with HDR ary device to link to the web, “are in- of streaming to a TV set. content for streaming and purchase. creasingly approaching ubiquity and The report says video game plat- During Oscar season, Warner Bros., becoming more accessible to the av- forms “have become a key plat- the studio that produced “Dunkirk,” erage consumer,” Nielsen says, not- form through which consumers can even offered Academy of Motion Pic- ing Smart TVs are now found in one- stream the latest SVOD content.” tures Arts and Sciences voters a 4K third of all U.S. TV households. Game consoles connected to the In- UHD screener of the movie so that Smart TVs typically come with ternet can now be found in at least they could get the best experience a variety of apps that allow access 39 million TV homes, Nielsen says – while reviewing the film. to content from Amazon, Google, over one-third of all TV homes. In its year-end report, DEG in HBO, Hulu, Movies Anywhere, Netflix, More than a quarter of all TV January 2018 said more than 14.6 Showtime, and YouTube, as well as homes (about 31 million) have at million 4K UHD TVs were sold in various online offerings from broad- least two devices with the ability to 2017, bringing the total households cast and cable networks. stream content to TVs. life to date to more than 30 million. For those TVs that don’t connect And of the 69.5 million TV homes In addition, there are approximately directly to the Internet, there are var- with at least an enabled multime- 8 million households with 4K UHD ious devices that can be used to link dia device, game console, or Smart Blu-ray playback devices (including to the web, including Blu-ray Disc TV, Nielsen says, 6.5 million of them set-top players and game consoles). players, game consoles like Sony’s have access to all three.

ema 2018 Annual Report 14 Fully 84% of US households now PIRACY VIDEO get some type of Internet service at Piracy remains a big problem for both the movie industry and the home home, up 10% points over the past entertainment sector. Carnegie Mellon University researchers, in a report decade, according to a Leichtman Re- issued in February 2016, concluded that box office revenues alone would search Group (LRG) study released rise by 15% if there were no piracy. in January 2018. Broadband now ac- And as the home entertainment business has shifted from packaged counts for virtually all (98%) of home media to streaming, pirates have followed suit, shifting from discs and Internet service. As a result, 82% of peer-to-peer file-sharing sites to unlawful streaming sites. U.S. households now have a broad- As a result, it’s no longer just the studios that are the victims. According band Internet service, up from 76% to a Digital TV Research study published in October 2017, the cost of piracy in 2012. to Amazon, Netflix, and other legal streamers will top $50 billion between 2016 and 2022. DISC PLAYERS The research company measured the effect of piracy on legal streaming Dedicated disc players – DVD, Blu- across 138 countries, and across TV and movie output. It pegged lost ray Disc, or 4K Ultra HD Blu-ray Disc subscription and ad revenue at $52 billion between 2016 and 2022. – remain a staple of the typical U.S. home. As of May 2017 the Consumer In June 2017, Netflix and Amazon were announced among the members Technology Association (CTA) report- of a new anti-online piracy industry coalition, the Alliance for Creativity ed disc players are found in 70% of and Entertainment. all U.S. households, making them the Speaking in February 2018 during a meeting with the German Producers third-most-owned consumer tech- Alliance at the 68th Berlin International Film Festival, Motion Picture nology product, behind TVs (96%) Association of America (MPAA) Chairman and CEO Charles Rivkin blasted and smartphones (80%). “the creeping rise of piracy,” according to Deadline. Still, the CTA says, the installed He said there were over 20 billion visits to streaming piracy sites in 2017 base of dedicated disc players and called piracy an “existential threat” to the industry. Rivikin also talked slipped from an estimated 164 mil- up the Alliance for Creativity and Entertainment. “This global collaboration lion in 2016 to 142 million in 2017, has already seen important victories against illicit streaming devices like a decline of 14%. Tickbox in the United States, and the elimination of apps that enable access to pirated content, here in Europe and in other parts of the world,” he said. In addition, there are approximate- ly 8 million households with 4K UHD In its latest annual Global Piracy Report, MUSO – a London-based Blu-ray Disc playback devices (in- technology company that works with the global content industry – chalked cluding set-top players and game up 191 billion global piracy visits in 2017, led by nearly 108 billion visits to consoles), the DEG said in its annual illegal streaming sites. Popular piracy sites include kinogo.co, primewire. year-end 2017 report. ag, and .is. Experts agree that 4K UHD Blu-ray And a survey published in February 2017 by Irdeto, a provider of digital Disc is the optimum way to watch security technologies, found that 74% of U.S. consumers acknowledged true 4K Ultra HD content, despite ad- that producing or sharing pirated video content is illegal – and yet 32% of vances in bandwidth that permit 4K the survey’s respondents said that they watch pirated content. Only 19% streaming. As recently as January said the financial hit inflicted on content owners and providers by piracy 2018 Tech Radar noted that 4K UHD would stop them from watching pirated content. Blu-ray is the only way “to get a true According to the study, 24% of consumers who watch pirated content 4K experience.” O are most interested in watching TV series; 24% are most interested in watching current theatrical films; and 18% are most interested in pirating movies on DVD and Blu-ray Disc.

ema 2018 Annual Report VIDEO GAMES 15

thanks to the launch of the Ninten- PlayStation Network and Xbox Live, Overview do NES console and the September respectively). And staged The video game business, like the 1985 release of “Super Mario Bros.,” a comeback with its . Comput- home video industry, has expanded which eventually sold 40 million cop- er gaming and mobile gaming have from physical into the digital and ies and quickly became the top-sell- achieved new heights of prominence, mobile realms, with a proliferation ing video game of all time – a record with the computer market yielding of platforms. it held for 23 years. such best-selling games as “Mine- craft,” which has since crossed over And, like home video, gaming re- The gaming industry’s rebirth also to consoles and as of early 2018 ally began in the 1970s, when video saw the rise of computer gaming, racked up total worldwide sales of arcade games moved beyond pinball with the Commodore 64 leading the 144 million copies, making it the sec- and other mechanical contraptions way, the arrival of as a compet- ond-best-selling game of all time. into the computer age. The release itor to Nintendo in the console mar- of “Space Invaders” was a pivotal ket, and the emergence of handheld In a February 2018 report, Fu- moment, with the introduction of LCD games, particularly Nintendo’s turesource Consulting reported that vector display technology – com- , which debuted in 1989. global software spending across all puter graphics on a screen – pav- gaming platforms (console, mobile, The video game industry’s next ing the way for such other iconic and PC) and regions reached $116 major milestone was the 1995 (U.S.) arcade games as “Donkey Kong” billion in 2017, with mobile account- launch of Sony’s PlayStation, the and “Pac-Man.” ing for $46 billion. outgrowth of what had initially been At the same time, game makers a joint venture between Sony and The U.S. video game industry began targeting the home, at first Nintendo. It was, in essence, a better generated a record $36 billion in with clones of the popular arcade mousetrap, and was soon outsell- revenue in 2017, up 18% from 2016, ball-and-paddle game “Pong.” The ing the latest consoles by Nintendo according to new data released in September 1977 introduction of the and Sega. The device’s popularity January 2018 by the Entertainment Atari VCS (later known as the Atari was aided by Sony reaching out to Software Association (ESA) and The 2600), along with nine launch games, third-party developers with pro- NPD Group. popularized the use of micropro- gramming and technical support, in The 2017 figure includes soft- cessor-based hardware and ROM sharp contrast to Nintendo and Se- ware revenue from physical and cartridges with game code. In 1980, ga’s isolationist approach. digital sales, which includes in- “Space Invaders” was released for game purchases and subscrip- By the end of the decade Sega had the Atari 2600 game console and be- tions, and hardware revenue, which exited the console market and Sony came the first “killer app” for video includes peripherals. game consoles, quadrupling sales of had launched its PlayStation 2, with the system. games on discs rather than cartridg- “The spectacular growth of our es. It was an even bigger success industry in 2017 proves video game The game business soared, with than the original PlayStation and developers, artists, and storytellers Japanese game maker Nintendo peg- spurred Microsoft to enter the mar- are the brightest lights in the U.S. ging the U.S. home video game mar- ket a few years later with its Xbox. economy, finding more ways to de- ket as a $3.2 billion-a-year business light the world’s 2.6 billion gamers Since then, PlayStation (now in its by 1983. But that same year came each year,” said Michael D. Gallagh- the celebrated crash, fueled by over- fourth incarnation) and Xbox have er, president and CEO of ESA. saturation, a lack of quality games, continued to dominate the set-top and the growth of the home comput- market, with the latest generation of According to ESA’s 2017 Essential er market. Game makers went bank- each featuring high-definition graph- Facts About the Computer and Video rupt and even market leader Atari ics, large hard disk-based storage, Game Industry report: posted a huge loss. Recovery took integrated networking, and online •Sixty-five percent of American a few years, but ultimately came. gameplay and sales networks (the households are home to someone ema 2018 Annual Report 16 who plays video games regular- video game players say they will “Call of Duty: WWII” was the VIDEO GAMES ly, and 67% of American house- buy a VR headset in the next year. top-selling game of the year, gener- holds own a device used to play •Seventy-four percent of PC/console ating more than $1 billion in global video games. VR headset owners use their device sales, physical and digital combined, •Gamers age 18 or older represent to play single player video games. according to publisher Activision. 72% of the video game-playing pop- The franchise’s move away from the ulation, and the average gamer is Content futuristic warfare of 2016’s “Call of 35 years old. Duty: Infinite Warfare” and back to U.S. consumers in 2017 spent a its Second World War roots was a •Adult women represent a greater total of $24.03 billion on video game portion of the video game-playing content, up from $21.95 billion in good one – according to Activision, population (31%) than boys under 2016, according to IHS Markit. Phys- “WWII” sold 500,000 copies its first age 18 (18%). ical video game software accounted three days on the market, twice as •Sixty-seven percent of parents play for $4.53 billion, according to IHS many as “Infinite Warfare” in the video games with their children at Markit data, while digital content same period. least once a week. revenue came in at $10.44 billion and Other top sellers include “NBA mobile at $9.06. •Seventy-one percent of parents 2K18,” from Take Two Interactive, feel video games positively impact which NPD has ranked at No. 2, fol- their child’s life. DISC-BASED GAMES lowed by Activision’s Destiny 2 at No. The NPD Group says consumer 3, Electronic Arts’ “Madden NFL 18” •Fifty-three percent of the most fre- spending on packaged console and at No. 4, and Nintendo’s “The Legend quent video game players report portable games and full game digi- of Zelda: Breath of the Wild” at No. 5. playing video games with others. tal formats for the two leading plat- •Eleven percent of U.S. households forms, PlayStation and Xbox, totaled NPD reports a total of 314 physi- own a virtual reality (VR) headset, $6.39 billion in 2017, up 6.3% from cal games were released into the and one-third of the most frequent $6.01 billion in 2016. market in 2017, up 16% from 271 the year before and 36% from 2015, when just 230 packaged releases hit VIDEO GAME HARDWARE, SOFTWARE, ACCESSORIES the market. Bundling additional content with & GAMECARD SPENDING 2016-2017 the base game became a more wide- ($ Millions) spread practice in 2017, NPD analyst Mat Piscatella wrote in a recap of 2016 how well his predictions for the year $6,388 2017 $6,008 fared. Many games, he notes, held their average prices “at higher lev- $4,711 els for longer periods of time than $3,687 has been seen in past years. Of the $3,144 $3,216 games in the top 10 for all of 2017, more than half offered [bundled] edi- $342 $275 tions, a ratio I expect may rise higher in the future.” Piscatella also highlighted the VideoVideo Game VideoVideo Game PCPC VideoVideo Game VideoVideo GameGame HardwareHardware Software*Software* Software**Software** AccessoriesAccessories & success of racing games, which saw GamecardsGamecards launches like “Forza Motorsport 7,” “F1 2018,” and “Dirt 4.” Overall, the *Video Games Software (Console and Portable; Physical and Full Game Digital Formats from PlayStation and Xbox platforms) genre saw 68% higher sales com- **PC Games Software (PC; Physical and Full Game Digital Formats from the STEAM platform) Source: The NPD Group, Inc. pared to 2016. ema 2018 Annual Report VIDEO GAME CONTENT SPENDING - 2008 - 2020 17

Mobile ($ Billions) VIDEO GAMES $26.19 Digital $25.64 $25.72 $24.03 $10.02 Physical $21.95 $9.70 $10.13 $20.37 $9.06 $18.45 $8.22 $17.10 $6.81 $15.82 $14.92 $15.35 $15.67 $5.54 $14.72 $4.34 $1.26 $1.60 $2.61 $11.42 $11.99 $11.85 $0.88 $1.01 $10.44 $5.16 $2.36 $3.16 $4.11 $8.33 $9.32 $5.84 $6.57 $7.48 $11.68 $10.54 $9.98 $9.05 $7.21 $6.19 $5.44 $5.23 $4.40 $4.53 $4.52 $4.18 $3.75

20082008 2009200 2010 2011 2012 2013201 2012014 2012015 2012016 2012017 2018 2012019 20202020 projected

Digital: PC multiplayer online game subscription and microtransactions, casual, social network, download to own, online TV and transactions and sub- scriptions, on-demand games. Mobile: all data is for smartphone, tablet, featurephone and mobile web, data excludes advertising revenues; includes all mobile application stores, operator portals, browser-based, and social network services. Source: IHS Markit

“Sales of racing games showed we’re seeing some acceleration in The PC game market is virtually the highest growth among all genres that digital shift.” 100% digital – and a fast-growing in 2017,” Piscatella said in The NPD This prompted ArsTechnica to ob- business, thanks to Steam and oth- Group’s year-end report, issued serve, “On the PC, games distributed er platforms. Subscription gaming in January 2018, “while shooter on discs in physical boxes have been services, similar to Netflix on the games generated the most overall a practical market rounding error for home video side, are on the rise. So consumer spend.” years now. And Destiny 2’s sales dis- are sales of downloadable content tribution highlights how the console (additional content released for an DIGITAL game market may finally (and inexo- existing video game in the hopes of As in the home video industry, the rably) be heading toward that point keeping gamers interested in con- shift from physical to digital products as well…. It’s not hard to envision tinued playing). Microtransactions – is accelerating. On a November 2017 60% to 70% (or more) of all sales for the sale of “virtual goods,” like extra earnings call, Activision executives major console games coming from weaponry, that gamers can buy while said that more than 50% of sales of downloads by 2021, when Sony and playing a game – are also gaining in the best-selling “Destiny 2” came Microsoft will probably be thinking popularity. And then there’s the mo- from downloads rather than physi- about releasing new consoles. That’s bile video game market, a huge in- cal discs. That’s significantly higher probably not enough to allow those dustry in itself. than the 20% to 25% of “Call of Duty” consoles to go completely free of the Retailers have adapted to the tran- sales that come from standard disc drive, but it could push sition to digital by selling cards that downloads. Activision CFO Spencer console-makers to offer cheaper, contain codes that can be redeemed Neumann on the call noted that “his- disc-free versions as an option.” online for full-game downloads, torically, we’ve been seeing that dig- But the digital revolution in gaming downloadable content, in-game cur- ital mix increase at about five points is by no means limited to downloads rency, online game subscriptions, and a year.” With “Destiny 2’s” digital commanding a bigger and bigger Nintendo eShop, PlayStation Store, majority, Neumann said, “we believe share of the console game market. and Xbox Live purchases. Online ema 2018 Annual Report 18 stores, including Amazon, BestBuy. VIDEO GAMES com, GameStop.com, Target.com, and Walmart.com, sell digital codes that allow the purchaser to in- stall and activate video games, access downloadable content, and obtain digital currency. All are growth areas, and all are digital.

O PC GAMING The PC video game market contin- Subscription gaming is becoming increasingly popular. (Photo by Magnus Fröderberg) ues to be flooded with video games, prompting PC Gamer in January 2018 to observe, “with more games 314 physical games. “This equates to and resources to PS4 and Windows than ever releasing on a daily basis, a ratio of 24.4 Steam games for every PC to further develop and improve there’s no way we, let alone anyone, console or portable game released,” the user experience on these two can possibly keep up with them all.” NPD says. Steam was launched in devices,” Sony said at the time. Play- Games for the home computer 2003 and a year later had just sev- Station also has the PlayStation Plus, began to catch on after the big vid- en games; as of December 2017, the which lets gamers access features eo game crash of 1983 led to a sev- total number of games available was for their consoles, from free games eral-year-long slump on the con- upwards of 18,000. to playing online with friends. sole side of the business. Consoles Xbox Game Pass is a subscription soon retook a dominant position O SUBSCRIPTION GAMING service from Microsoft for use with in the market, but beginning about That subscription gaming services its game console. Users a decade ago PC games began to continue to gain ground isn’t surpris- have access to a catalog of games experience a resurgence due to dig- ing, given the massive success Net- from a range of publishers. The ser- ital distribution, which in turn was has had in the on-demand home vice was launched in June 2017 with enabled by a steady, and rapid, in- video viewing market. Consumers about 100 games. In September 2017, crease in cost-effective broadband have gotten used to an unlimited Game Pass expanded globally and Internet access. buffet of content for a low monthly is now available in 40 countries. In January 2018, Microsoft announced PC games are generally a lot subscription fee. So what if most of plans to release all new Xbox One cheaper than console games, and it isn’t new? exclusive games from Microsoft many are free. The NPD Group esti- Two of the most popular sub- Studios into Xbox Game Pass on the mates consumers spent $280 million scription services are tied to the same date as their global release, on PC game software in 2017, down two leading beginning with “Sea of Thieves” on from $340 million in 2016. formats, Sony’s PlayStation and the March 20. The PC game market is dominat- Microsoft Xbox. Game maker Electronics Arts has ed by Valve’s Steam distribution PlayStation Now is a cloud gaming two subscription services, EA Access service, which by early 2018 had service developed by Sony Interac- for Xbox One and EA Origin Access more than 150 million registered ac- tive Entertainment, with more than for the PC. Both services function as counts. Steam provides users with 600 PS3 and PS4 games that are digital storefronts for EA games. In installation and automatic game up- streamed directly to users’ PS4s or March 2018, EA announced that it is dates, as well as social features such PCs. Sony in 2017 discontinued Play- opening its Origin Access PC gam- as friends lists and in-game voice Station Now on PlayStation 3, Play- ing subscription service to other and chat. Station Vita, PlayStation TV, Sony publishers, with games from War- The NPD Group notes that in 2017, televisions (2013–15), Sony ner Bros. Interactive Entertainment more than 7,600 games were re- Blu-ray Disc players and all Samsung and other publishers set to join the leased on Steam, compared to just TVs. “We decided to shift our focus service. First up are several Batman ema 2018 Annual Report 19 play. DLC ranges from new levels and challenges to aesthetic content, VIDEO GAMES such as outfit changes. Microtransactions refers to in- game purchases that unlock cer- tain features or give users special abilities, characters, or content to enhance game play. Microtransac- tions are often found in free-to-play games and provide gamers with the opportunity to gain a competitive ad- vantage – at a cost, of course, which Batman: Arkham Asylum is one of several Warner Interactive games now available on EA’s Open Access subscription service. (Photo courtesy Warner Bros.) helps developers monetize their oth- erwise free games. games from Warner Bros., includ- GameFly offers a subscription But microtransactions aren’t limit- ing “Batman: Arkham Asylum,” “Bat- streaming service that works ed to free games. man: Arkham City,” “Batman: Arkham through certain smart TVs and Am- In December 2017, Intelligent Origins,” “LEGO Batman,” “LEGO Bat- azon Fire. The cost is less than $10 Economist noted the controversy man 2,” and “LEGO Batman 3.” a month for a growing list of games that erupted when a Reddit poster re- Also in the race to become the Net- and unlimited access. (GameFly marked that it cost him $80 to unlock flix of the gaming world is Utomik, also offers a subscription service for Darth Vadar on Electronic Arts’ “Star a streaming service that’s been in console games by mail.) Wars Battlefront II.” EA introduced beat mode since 2015. Utomik cur- And OnePlay, for $9.99 a month, a “loot box” system in the game, rently hosts more than 600 games offers an extensive roster of PC which encourages gamers to spend from big publishers like Take Two In- and Android video games (more real money on the game to unlock teractive and indies from Team17. Its than 2,000 titles), with new games particular fan favorites like Darth main draw is the way it hosts games added weekly. Vader or Luke Skywalker or oth- on the cloud, meaning its customers er in-game rewards, the Intelligent Waiting in the wings: Google. The Economist reported. “Keep in mind won’t have to download an entire Information website in February 2018 game to begin playing it. that this game already retails for $60 reported that Google is developing to $80…. Traditionally, such games Late last year, Utomik began a subscription-based game stream- allow you to play and complete the a push to add new titles on their ing service that could work on either game entirely without spending any launch day, beginning with Neck- its or a Google console, more money…. EA [stated] that you bolt’s “Yono and the Celestial Ele- which is still being developed. “The didn’t have to spend money to unlock phants,” which came out on the Nin- service, code-named Yeti, would put these rewards, you could do so by tendo Switch, Steam, and Utomik at Google at the forefront of a new part playing the game and grinding away. the same time on October 12. Utomik of the video game business that lets Redditors compiled a spreadsheet of offers unlimited play and costs $6 people play games as they’re being how long certain things would take, per month for a single player and streamed, rather than using down- and it’s mind-blowing that EA thinks $10 for a family plan that supports loads or discs,” Reuters said, quoting people would spend 40 hours to un- up to four players. from the Information report. lock a single popular character…. Various other subscription gaming EA has since removed in-game pur- services also are available. Jump ODOWNLOADABLE CONTENT, chases from ‘Battlefront II’, but I sus- focuses on award-winning Indie MICROTRANSACTIONS, AND pect this monetization strategy is far games, but as of the end of 2017 only LOOT BOXES from over.” had about 60 games available. The Downloadable content (DLC) Indeed, other games such as service offers a 14-day free trial that is additional content created for “Need For Speed: Payback” and turns into a $9.99 monthly charge if already-released video games, “Destiny 2” had their own pay-to-win you don’t cancel. designed to extend the life of game controversies. “Eventually, loot boxes ema 2018 Annual Report 20 unsettled enough constituents to accelerated growth driven by the overall PC and Mac games, and VIDEO GAMES rile their representatives,” Engadget empowering nature of games and overall mobile game spending observed in February 2018. “Legis- the impact gaming is having on the was 3.6 times higher than home lators in Hawaii, Washington and Il- media and entertainment landscape game consoles.” linois have introduced bills to either as a whole.” The report says the $70 billion es- study loot boxes or restrict access to The Newzoo report maintains mo- timate includes both money paid to young players.” bile gaming (smartphone and tablet) publishers (70%) and to platforms is the largest segment of the video (30%). That compares to $34 billion O MOBILE GAMING game industry, accounting for 42% for PC and Mac games, $22 billion The mobile video game market, of the total global market. The seg- for game consoles, and $3 billion for birthed with the advent of the smart- ment also has the most gamers with handheld game devices. phone in 2007, is a huge and growing 2.1 billion, the majority of whom are business. Futuresource Consulting gaming on smartphones. All of the totals include both digital pegs global software spending on and physical spending, but they do In March 2018, a new report from mobile gaming in 2017 at $46 billion not include ad revenue. Mobile gam- market researchers App Annie and and expects that figure to grow to IDC put the worldwide spending to- ing figures include all app stores: $60 billion by 2022, fueled by con- tal on mobile games even higher, Amazon, , iOS App Store, sumers in China. at $70 billion. “Mobile games first Samsung Galaxy, Windows Phone “Ten years ago, the launch of the overtook home game consoles and Store, and third-party Android iPhone ignited a revolution in the in- PCs in 2014,” the report says. “But stores. The home game console to- dustry,” Newzoo said in a November now mobile gaming’s lead in con- tal includes discs, digital games, 2017 update to its quarterly Glob- sumer spending has widened even and gaming-related subscription al Games Market Report. “Today, more. In 2017, overall mobile gaming services (PlayStation Plus and we are witnessing a new phase of spending was 2.3 times more than Xbox Live).

SHARE OF CONSOLE TIME AMONG USERS: AGES 13+

PLAYING VIDEO 21% 20% 14% 18% 29% GAMES OFFLINE PLAYING VIDEO 32% 19% 25% GAMES ONLINE 15% WATCHING DVDS/ 14% 20% 14% BLUE-RAYS 9% 8% 10% WATCHING VOD/ 27% 28% 15% STREAMING SERVICE 21% 26% WATCHING DOWNLOADED 9% MOVIES, TV SHOWS 9% 13% 6% 8% 23% OTHER 14% 8% 13% 12%

MicrosoftMicrosoft Sony Microsoft Sony PlayStation Nintendo Xbox 360 PlayStation 33 XboxXbox One/S/X 4/Slim/Pro4/Slim/Pro Switch

Notes: Totals may not equal 100% due to rounding. Source: Nielsen 360 Gaming Report 2017 ema 2018 Annual Report 21 Microsoft reported $96.7 billion Hardware in revenue in the fiscal year ended VIDEO GAMES U.S. consumers in 2017 spent a to- June 30, 2017, up 5% from the pri- tal of $6.9 billion on video game soft- or fiscal year. Of that, about $9.26 ware, up nearly 19% from $5.8 billion billion came from Xbox sales, ac- in 2016, according to figures released cording to Securities and Exchange in January 2018 by ESA and The NPD Commission filings. Group. NPD gaming analyst Mat Pis- In 2017, Xbox hardware sales Xbox One X (Photo courtesy of Microsoft) catella said the growth in hardware slipped 21% from a year earlier, sales was driven primarily by the primarily because of lower console , which he maintains prices and sales volume, according has sold more in its first 10 months to The Street. on sale than any other platform in history “on a time-aligned basis.” But in its most recent quarterly re- port for the three months ended Dec. The Sony PlayStation 4, howev- 30, 2017, Microsoft reported an 8% PlayStation 4 Pro (Photo courtesy of Sony) er, remained the best-selling game spike in gaming revenue driven by console in 2017. “Combined sales of Xbox One X hardware sales growth PlayStation 4 and Xbox One continue following the launch. For the quarter, on a record-setting pace,” Piscatel- hardware revenue increased 14% la said. “Over the first 50 months in and software and services revenue market for each console, the com- grew 4%. bined hardware installed base of the PlayStation 4 and Xbox One now ex- “With even more sales time under ceeds that of the PlayStation 3 and its belt and more games available for Switch (Photo courtesy of Nintendo) Xbox 360 by 18%, and that of the a wider range of consoles, Microsoft PlayStation 2 and Xbox by 4%.” could tee up further gaming revenue to bolster an anticipated 11% year- CONSOLES over-year sales growth,” according The console market saw continued to The Street. strong sales of the PlayStation 4 and In March 2018, Microsoft an- Microsoft Xbox One as well as a very nounced a trio of major new features successful launch of a new console, for Xbox One X console “that togeth- Nintendo’s Switch, which debuted er substantially increase the tech- in March 2017 at a suggested retail nological lead the console enjoys” price of $299. over the PS4 Pro, Forbes observed. “The most exciting of these Microsoft O MICROSOFT XBOX ONE announcements was the revelation Microsoft’s Xbox One staged a sig- during the latest episode of Inside nificant comeback in 2017, fueled by Xbox that both the Xbox One X and the November 2017 launch of Xbox Xbox One S would be getting support One X. The new console, priced at for FreeSync. As AMD’s Antal Tun- $499, shipped with 6 teraflops of gler explains in the Inside Xbox vid- graphical power, more than the PS4 eo, adding FreeSync support via an Pro, which has 4.2 teraflops. Micro- upcoming software update will en- soft is using a custom GPU engine able the S and X consoles to harmo- that runs at 1172MHz, a big increase nize games’ fluctuating frame rates over the Xbox One’s 853MHz and the with the frame rates being produced PS4 Pro’s 911MHz. Microsoft also by AMD’s FreeSync capable Radeon shipped the Xbox One X with an Ultra displays. This is a huge deal, as it can HD Blu-ray drive for 4K movies and essentially eradicate the tearing and entertainment, and 1TB of storage. stuttering you normally get when ema 2018 Annual Report 22 screens (which are usually locked VIDEO GAMES at 60fps) have to try and cope with varying frame rates within game en- gines. This literally game-changing feature has been available on PCs for some time, but expanding its use to consoles is a major deal. Especial- ly as it seems it may also work with some of Samsung’s 2018 TVs.”

O SONY PLAYSTATION 4 Sony’s PlayStation 4 has been the market leader in the console game business since it was introduced in November 2013. As of December Mario Kart 8 is one of several hit games that have fueled Switch sales. 2017, 70.6 million PlayStation 4 con- (Photo courtesy Nintendo) soles have been sold , Sony declared at that time. coming months, an impressive array some: It’s a hybrid console, capable Two new versions of the PS 4 were of major exclusives are currently in of playing titles up to 1080p on a tele- introduced in 2016 and helped drive the works. And if you’re looking for vision or up to 720p on its portable, sales in 2017: the PS4 Slim and the a way to enjoy more 4K content on 6.2-inch display.” PS4 Pro. The former is lighter than your new 4K TV, the PlayStation 4 Engadget notes that the Switch ex- the original and boasts better Wi-Fi Pro offers an upgrade path to even clusively features some of the year’s and Bluetooth performance. The Pro, prettier games. All of which is to say best games, including “The Legend on the other hand, supports 4K gam- one thing: Sony’s PlayStation 4 isn’t of Zelda: Breath of the Wild,” “Mario ing and streaming and has an addi- showing any signs of slowing down.” + Rabbids Kingdom Battle,” “Mario tional USB port. Kart 8,” “Splatoon 2,” and “Super The continued success of the Play- O NINTENDO SWITCH Mario Odyssey.” Third-party devel- Station 4 is due to several different Nintendo’s highly anticipated opers, too, have been “largely happy factors, Business Insider observed Switch hit the market in March 2017 with the company’s approach to pub- in December 2017: “The PlayStation at a suggested list price of $299. In lishing,” Engadget notes, with such 4 was the less expensive console January 2018, Nintendo said that indie favorites as “Rime,” “Shovel when it launched in 2013, coming in Switch was the fastest-selling con- Knight,” “Stardew Valley,” “Tower- at $100 less than Microsoft’s Xbox sole ever in the United States after Fall,” “TumbleSeed,” and others. One. The PlayStation 4 is an attrac- 10 months, with 4.8 million units The Switch comes with two small tive box that easily fits into your sold. The NPD Group subsequent- Joy-Con controllers, which double home, and using it as more than ly reported that the Switch racked as full gamepads, complete with a game console is a snap. A lineup of up higher first-year sales than any Nintendo’s new HD Rumble technol- killer blockbuster games, from ’Un- other U.S. console in history. ogy. A full-size Switch Pro Control- charted 4: A Thief’s End‘ to ’Horizon The Switch is a versatile hybrid ler costs $70, and the Charge Grip Zero Dawn‘ to ’Bloodborne,’ made game console that easily “switch- accessory, which lets the Joy-Cons the PlayStation 4 a must-have con- es” between a big-screen TV and recharge while connected, costs $30. sole. All three of those games are a handheld device. According to En- In a March 2018 corporate man- only playable on PS4. And success gadget, “The Switch is, in a word, agement “policy briefing,” Nintendo begets success — the PlayStation 4 wonderful. It’s not the most power- said a paid subscription service “that has overtaken the zeitgeist as ‘the’ ful gaming console available today expands the online functionality of game console to own if you’re going … nor does it support 4K, the most the Nintendo Switch” is in the works. to buy a game console. apps or the widest variety of games. ”We reported previously that the ser- “Though Sony’s exclusive game Still, the Switch is everything Ninten- vice would launch in 2018, and now lineup isn’t full of bangers in the do promised it would be, and then the official start time has been set to ema 2018 Annual Report 23 September 2018,” the company said. the arrival of Switch, which also has Tom’s Guide reported in November “Work is progressing on ways to fur- a handheld gaming option. Several 2017. “Home to big-name exclusives VIDEO GAMES ther heighten the gaming experience updated versions have since come like ‘Uncharted: Golden Abyss’ and for consumers. Details will be made on the market, with prices around ‘Killzone Mercenary,’ Vita has also available as they are finalized.” $200 or less. accrued a wealth of beloved indie The new Nintendo 2DS XL, games. Japanese visual novels and O NES AND CNES CLASSIC launched in July 2017 and selling for role-playing games are plentiful on For retro-gamers, Nintendo in No- about $150, is a new portable gaming the system, as are Western indie ti- vember 2016 resurrected the origi- system that gives players access to tles like ‘Don’t Starve’ and ‘Rogue nal Nintendo Entertainment System a huge library of games, including Legacy.’ The system also lets you ac- – which first brought “Super Mario” past DS, NES, and SNES classics. cess many downloadable PS One and into the public consciousness more PSP classics. On the hardware side, The Nintendo 2DS is a low-priced than 30 years ago – with the NES Vita uses a 5-inch capacitive touch (under $80) portable system for Classic Edition, a miniature replica screen and a unique, rear-mount- younger gamers launched in Octo- of a vintage machine that includes ed touchpad… Thanks to the Vita’s ber 2013 as an entry-level version of a static library of 30 built-in games functionality, you can the 3DS. It includes a 4GB SD card from the licensed NES library. even use this device to play your and gives players access to the 3DS PS4 games when you’re away from Nintendo produced and sold about library of cartridge-based and down- your TV.” 2.3 million NES Classic Editions from loadable games. November 2016 through April 2017, In its March 2018 corporate man- with shipments selling out nearly im- agement “policy briefing,” Nintendo mediately at upwards of $200 a pop. Microconsoles are mostly low-cost said, “The Nintendo 3DS character- In April 2017, Nintendo announced it Android devices that are designed to istics, price points, and play styles was discontinuing the product, but connect to TVs and play video games differ from Nintendo Switch, and we shortly after announcing the Super downloaded from Google Play and intend to continue the Nintendo 3DS NES Classic Edition ($80) in Septem- other app stores. Microconsoles be- business separately and in parallel. ber 2017, Nintendo affirmed it will gan to appear in 2010 with OnLive We will continue to use its installed produce more NES Classic Editions and proliferated over the next few base and rich software library in starting in mid-2018. years with the GamePop, GameS- our business…. The affordability of tick, MOJO, Nvidia Shield, , Raz- In March 2018 Nintendo said, the Nintendo 3DS family of systems er Switchblade, and the PC-based “Super NES Classic Edition has places it in a critical position as the Steam Machine. The WhatGamesAre reached 4 million units in global first dedicated video game platform website proclaimed 2013 “the year sellthrough…. We plan to continue for children who have no prior ex- of the ,” but excite- selling NES Classic Edition and Su- perience with dedicated video game ment has since been temperedby the per NES Classic Edition this year. We systems. It is also positioned as an emergence of game streaming ser- view them as an opportunity to gar- affordable product for budget-con- vices and freshened up or new con- ner interest in Nintendo Switch from scious consumers. We will continue soles like the Microsoft Xbox X and those who have not interacted with working to promote Nintendo 3DS to the Nintendo Switch. video games in a long time, or ever.” these consumers.” Sony also has skin in the hand- Accessories HANDHELDS held game with its PlayStation Vita Nintendo dominates the handheld ($200). The successor to the Play- Accessories are big business in market. The reigning champ: the Station Portable was released in the video game market. Joysticks Nintendo 3DS, which is capable of Japan in December 2011 and in the and other controllers, charging sta- displaying stereoscopic 3D effects United States, Europe, and other tions, headsets, game cards, gaming without the use of 3D glasses or worldwide regions in February 2012. chairs, and for PC gamers, keyboards additional accessories. Nintendo of- “While it might not be as popular as constitute a growing segment of vid- ficially unveiled the console at the Nintendo’s handhelds, Sony’s Play- eo gaming, The NPD Group says. E3 video game event in June 2010 Station Vita is still a strong contend- In its year-end 2017 report, NPD and vows continued support, despite er in the handheld gaming space,” says total spending on video game ema 2018 Annual Report 24 accessories grew 2% in 2017 to $3.2 Sony in December 2017 announced conspired to limit widespread adop- VIDEO GAMES billion. The top-selling accesso- that it has sold 2 million PlayStation tion of VR. Notably, these include ry was the PS4 Dualshock 4 Black VR headsets since the device was high hardware pricing for PC based Gamepad, aimed at younger gamers, introduced a year earlier – and six VR and to a lesser extent PlayStation- with a touchpad. months after Sony announced the VR (PSVR). While the VR platforms sale of 1 million VR headsets. Sales have pushed ahead with hardware figures for competitors like HTC and development, the creative commu- Alternate ‘Realities’ Oculus are not available, but Sony nity has lagged behind in its ability As noted earlier in the Video sec- is the likely market leader, since it to generate a sufficient amount of tion, virtual reality (VR), augmented has sold more than 70 million PS4 compelling content.” reality (AR) and mixed reality (MR) consoles capable of powering the “A key issue for the industry is are primarily aimed at the video PlayStation VR headsets, along with the lack of killer applications for VR gaming rather than the passive vid- a steady supply of games like “Bat- that are essential to drive consumer eo-viewing market. man: Arkham VR,” “Moss,” “Super- adoption, and this has proved to be VR creates an entirely new, 360-de- HyberCube,” and “Resident Evil 7,” a major limiting factor that has im- gree computer-generated world and which Digital Trends in March 2018 pacted growth,” Michael Boreham, brings the user inside it. VR games called “a fantastic game [that] has Market Analyst at Futuresource Con- require the use of VR headsets, or (hopefully) paved the way for longer, sulting said in the report. “The slow goggles, such as the Sony PlaySta- more intense VR experiences, akin to rate of consumer adoption of VR tion VR, the -owned Oc- the AAA games we’re used to playing hardware has also impacted on the ulus VR system and the HTC Vive. on PS4 and Xbox One.” content community, with games and Alternatively, a headset adaptor But don’t expect VR to be the Next video publishers being wary of fund- and software can turn Big Thing in gaming. As Forbes ing VR productions until the installed a smartphone into a VR display. The warned in a March 2018 article titled base of hardware has reached a level cheapest are handheld smartphone “5 Reasons Why You Shouldn’t Buy where they can guarantee a healthy adaptors made of cardboard, avail- An HTC Vive Pro For $800”: “VR isn’t return on investment.” able at a nominal cost or given away ready for prime-time. VR can be fun. This has resulted in major games at events or through promotions. I’ve played some games I really en- publisher Electronic Arts suspend- AR, in contrast, overlays the real joyed. But mostly it’s still very rough ing VR related projects for the fore- world with virtual characters or around the edges. Buying an $800 seeable future and CCP closing its scenes, as in “Pokemon Go,” per- headset is basically just an incredibly VR production operation, Future- haps the biggest pop cultural craze expensive way to sign up as a guinea source Consulting noted. Still, the of 2016. And MR is a mixture of the pig. Even with a boosted resolution report said, “games continue to be two. Using devices like Microsoft’s and the convenience of built-in head- the key application for VR. There has much-ballyhooed HoloLens, mixed phones, the Vive will still have a very been a continued roll out of games reality brings people, places, and real problem: The games still don’t titles across the mobile, console and objects from the physical and digital justify the cost. Until there are better PC platforms throughout 2017, with worlds together. With the HoloLens, games out there for VR, I don’t think popular franchises such as ‘Mine- the user’s view can be controlled by you should buy an headset, even craft’ moving to VR.” dragging the mouse cursor over the much cheaper ones like the PSVR.” By 2021, the total value of the VR image or by using keyboard keys to In its January 2018 VR report, gaming market is forecast to in- pan left, right, up, and down. Futuresource Consulting observ- crease, reaching $8.8 billion from VR is getting the lion’s share of ers, “At the beginning of 2017, almost $350 million during 2017, the attention – and the investment VR was on course to enjoy wide- Futuresource Consulting says.O dollars. The world’s leading tech- spread adoption. However, during nology companies - including Ap- the year device sales fell short of ple, Facebook, Google, Microsoft, expectations …. [and] the industry Samsung, and Sony – are spending has (since) adopted a more conser- heavily to develop VR equipment vative viewpoint with regards to the and applications. speed of uptake. Many factors have

ema 2018 Annual Report RETAILING 25 & STREAMING

While content is the core of the Distribution channels over the digital and physical, and some of the home entertainment business, it last few years have changed sig- top retailers are eager to differen- has to somehow get to the consum- nificantly, with digital-only retailers tiate themselves by acquiring their er, and that’s where retailers – both like FandangoNOW, Google Play, and own proprietary content. That’s not traditional brick-and-mortar and dig- iTunes carving out bigger and bigger a new concept – way back in 1998, ital – come in. Retailers add value chunks of the sell-through market. when video rental was still generat- through merchandising and promo- Meanwhile, SVOD – led by Netflix, ing the bulk of home entertainment tion of individual titles, promotional Amazon, and Hulu, in that order – revenues, Blockbuster Entertain- themes, and marketing home enter- has become the “new” rental model, ment Corp. launched its own film ac- tainment consumption generally. Ad- with consumers paying a flat month- quisition company, DEJ Productions ditionally, retailers play a key role in ly or annual fee to watch as much – but never has this drive been as not just getting content to consum- content as they want, on demand. powerful as it is today, with Netflix ers, but also in helping consumers setting an ultimate goal of 50% orig- discover programs that might appeal If home entertainment is defined inal content and Amazon expected to to them. Back in the old days of vid- as that segment of the market that spend $5 billion on original content eocassette rental, cardboard signs delivers content directly to the con- in 2018. advertised new releases or “sug- sumer for on-demand viewing, then gested picks.” Today, discovery often the home entertainment retailer The following is an overview of to- comes through a complex maze of landscape has become increasingly day’s home entertainment retail land- algorithms and data analytics. diverse. Lines have blurred between scape, focusing on the key players:

U.S. STORE COUNT BY CATEGORY - 2008-2017 Major chains* Indy/Supermarkets Kiosks 53,194 52,062 49,228 49,029 48,160 2,526 1,822 46,058 46,508 949 935 44,773 42,459 4,798 4,910 4,357 917 755 3,968 3,760 768 45,758 45,883 3,528 2,825 6,300 44,112 3,118 35,438 7,801 43,465 42,928 41,613 40,887 38,130 9,138 7,804

27,250

8,500

17,800

20082008 2002009 20102010 20112011 20122012 2012013 2012014 2012015 2012016 2012017

*Major chains include: Blockbuster, Blockbuster Franchisees, , , Family Video, Hastings, and Other Chains (AAFES, V. Warehouse, etc.) Source: comScore Retail Essentials ema 2018 Annual Report 26 O AMAZON Amazon.com, the largest Internet retail- RETAILING & STREAMING er in the world, is also one of the leading sellers of both home entertainment and video game product, physical as well as digital. And its Amazon Prime Video service is a strong No. 2 to Netflix on the streaming front, giv- ing subscribers unlimited access to thousands of mov- ies, TV shows, and other filmed content. Amazon Prime Video is included with Amazon Prime memberships in the U.S. and select other territories, which give mem- bers free two-day shipping, and is also available as a standalone subscription service throughout the world (except notably China). Amazon doesn’t break down its numbers by product Amazon Prime Video is one of the top subscription streaming category, but the company reported total 2017 sales of services in the country. (Screen capture) $177.9 billion, a 31% spike from the prior year. In July 2017, reported that Amazon Amazon this year will have to contend with the loss had about a 20% share of the digital sellthrough and of HBO, which is not renewing its groundbreaking li- streaming business, thanks to both its Amazon Prime censing agreement with Amazon Prime Video when it Video subscription service and its standard Amazon expires in 2018. The agreement did not include current Video catalog. HBO shows “Game of Thrones,” “Insecure,” “Silicon Val- Amazon has promised an even bigger push into orig- ley,” “The Night Of,” “True Detective,” “Veep,” and “West- inal content as it competes globally against Netflix and world,” and pre-dated Amazon Channels, the upstart other SVOD platforms. In early 2018, JPMorgan’s Doug platform showcasing (to Prime members) third-party Anmuth estimated the company will spend $5 billion on SVOD services — including HBO Now. video content this year, keying in on big-budget original Amazon also continues to place a lot of faith in the vid- shows and sportscasts. eo game business. In addition to selling physical video In 2017, Amazon’s most popular original content in- games, Amazon offers video game streaming through cluded the Oscar-winning “Manchester by the Sea,” the Prime, which also sells PC games and down- motor-sport-themed “The Grand Tour,” featuring the loadable content (DLC). Last summer Amazon acquired cast of BBC’s “Top Gear” franchise, the Emmy-winning GameSpark, an Irish video game developer tool, for series “Transparent,” and Amazon Studios’ “Paterson.” $10 million. “Amazon is increasingly proving that they Original series include “Le Mans: Racing is Everything,” view gaming as a very serious industry,” WCCF Tech which chronicles the 24-hour French car race; kids se- observed in March 2018, noting the company’s 2014 ries “An American Girl Story: Summer Camp,” “Friends acquisition of Twitch for nearly $1 billion, its third-larg- for Life” and “Danger & Eggs”; and original unscripted est acquisition ever, behind last year’s Whole Foods series “All or Nothing,” which chronicles the NFL’s Los and 2009’s Zappos. Both GameSpark and Lumberyard, Angeles Rams’ return to Southern in 2016. a free-to-use game engine Amazon launched in early “We’re going to continue to invest in video and increase 2016, feature tight integration into the Twitch platform. that investment in 2018,” CFO Brian Olsavsky said on “Amazon continues to apply its strategy of vertical and an October 2017 earnings call. “We’re very bullish on horizontal integration everywhere it can,” WCCF Tech what we’re seeing both with how customers are re- observes. “Just looking at video games; Amazon can sponding and the quality of the [original] content.” now offer the tools to build the client game, the tools In March 2018, internal documents obtained by Re- for server-side features, the AWS cloud to function uters said Amazon Prime Video generated 26 million as the game servers, and finally, even Twitch to allow initial viewers for original programs in early 2017, in- streaming and viewing of those games.” cluding 5 million viewers for top shows such as “The Amazon also is plowing ahead with virtual reality, de- Man in the High Castle,” “Mozart in the ,” “The spite pullbacks by some large players, like . In Grand Tour,” and “Transparent.” November 2017, Amazon debuted software tools called ema 2018 Annual Report 27 and “Breaking Bad” and “Better Call Saul” for AMC Net- works and Netflix. Apple is co-creating “Carpool Kara- RETAILING & STREAMING oke: The Series” with James Corden (“The Late, Late Show”) and “Planet of the Apps” (Apple’s first original series), which rates contestants’ app potential. Both programs will stream on Apple Music, the digital music service with more than 20 million subscribers. “We’ve been working with television for a long time and we’ll continue to work with television partners for a long time, whether it’s Netflix or DirecTV or ABC,” Cue said, adding distribution of video via Apple Music represents a “differentiating” factor. “With Apple Music, we saw there was an opportunity to do new and creative things that hadn’t been done before,” he said.

O AT&T DIRECTV NOW The giant telecom’s enter- Amazon Sumerian to help coders more easily build vir- tainment’s division includes TV streaming service tual reality and augmented reality apps using 3D com- DirecTV Now, in addition to pay-TV units DirecTV and puter graphics. Amazon frames Sumerian as a way to AT&T U-verse. Both DirecTV and U-verse offer digital build 3D-powered apps and games capable of running sales of movies to subscribers. In its year-end report on some VR headsets as well as on Apple products like for 2017, AT&T said DirectTV Now tallied 368,000 net the iPhone or iPad. adds to reach nearly 1.2 million DirecTV subscribers. DirecTV Now offers linear channels from major media O APPLE ITUNES More than a decade ago, Apple’s companies such as A&E, AMC, CBS, Discovery, Disney, iTunes Store launched the digital sellthrough/rent- Fox, MLB, NBCUniversal, Turner, Univision, and Via- al market when its revolutionary digital music store, com. The service also allows users to add on , which opened in 2003, began offering video content. HBO, Showtime, and for an extra charge, giving Today, the iTunes Store features more than 112,000 them access to HBO Go, Showtime on Demand, and movies and 300,000 TV shows for sale or rent, playable Starz on Demand, respectively. across a broad swath of Apple devices. Meanwhile, AT&T’s acquisition of Warner Bros., which In July 2017 the Wall Street Journal reported that a year ago seemed a sure , is now in limbo, with the Apple’s share for selling and renting movies, TV shows, U.S. Justice Department seeking to block the merger and other video content has dropped to between 20% on the grounds that the combined companies would and 35% — down from over 50% as recently as 2012. force rivals to pay more for “must-have” content from Apple responded to requests for comment by the Jour- the Turner Networks, including CNN, TBS, and TNT, and nal by saying it focuses on providing users with con- that the result would be higher prices for consumers, tent from HBO, Netflix, and other subscription services according to Variety. through the App Store. Apple also told the Journal that its movie rentals and purchases had risen over the last O BARNES & NOBLE The physical disc continues to year and had reached their highest level in more than command a significant chunk of store space at Barnes a decade. & Noble, the national bookstore chain that as of Octo- Despite revolutionizing digital media consumption, ber operates 778 retail stores in all 50 states. Apple until recently hadn’t put much focus on original Both in stores and on its e-commerce site, Barnes & content. Speaking at Re/code’s tech confab in Dana Noble frequently partners with studios to promote new Point, Calif., Eddy Cue, SVP of Internet software and releases. Last year Disney partnered with the retailer services at Apple, suggested that mindset is changing, on “Beauty and the Beast,” with Barnes & Noble loca- Home Media Magazine observed in June 2017. Apple tions nationwide hosting giveaways, themed activities, hired executives Jamie Er- readings of Cynthia Rylant’s Beauty and the Beast pic- licht and Zack Van Amburg — co-producers of “Sneaky ture book and sing-alongs to the movie’s soundtrack. Pete” for Amazon Prime Video, “The Crown” (Netflix), Warner Bros. also looked to Barnes & Noble to ratchet ema 2018 Annual Report 28 up attention for “The Lego Batman Movie,” with a series The entertainment segment, which includes products RETAILING & STREAMING of events culminating with Lego building areas for kids, such as DVD/Blu-ray Disc movies, video game hard- giveaways and special merchandise. ware and software, books, music CDs, and computer Barnes & Noble also holds a bi-annual 50% off software, generated 10%, or $1.39 billion, of domestic sale on the high-brow Criterion Collection each July revenue. The segment generated 9% ($1.1 billion) in and November. the previous-year period.

O The BBC’s U.S. subscription service was O BEST BUY Since the launch of DVD in 1997, Best Buy BRITBOX has been a key player in home entertainment software launched in March 2017 and features mostly British sales. The company was founded by Richard Schulze movies, TV shows, and other content. Some series, in- in 1966 and called Sound of Music before the name cluding “Coronation Street,” have new episodes avail- changed to Best Buy in 1983. Best Buy generates near- able the day after their British premiere. Britbox in ly $40 billion annually. Best Buy has more than 1,500 February 2018 announced that it will expand its service stores in the United States, Canada, and Mexico, and to Canada. says more than 70% of the population lives within 15 minutes of a Best Buy store. O CBS ALL ACCESS Celebrating its second birth- day in January 2018, CBS All Access is a subscription In February 2018, Best Buy announced plans to close streaming service operated by the CBS Network. Its all of its roughly 250 smaller-format mobile phone marquee title is “Star Trek: Discovery,” available only stores by the end of May. Around the same time, Best to subscribers, who also gain access to CBS broadcast Buy announced it will no longer sell CDs as of July content one day after it airs on the network. 2018. But while observers fear cutbacks in DVD and Blu-ray Disc may be next, there has been no indica- CBS All Access is “doubling down” on its investment tion of this. Five years ago, CEO Hubert Joly said store in original content, CBS COO Joseph Ianniello said at floor space optimization mandated shrinking packaged the Deutsche Bank Media & Telecom Conference in media and redoubling emphasis on growth areas. But March 2018, promising six or seven new originals in when asked about DVD and Blu-ray Disc, he said, “I love the coming year. these categories.” In August 2017 CBS announced plans to expand Today, the nation’s largest CE retailer continues to All Access streaming service on an international ba- sell packaged media in stores and online — including sis, beginning this year in Canada before heading to 4K Ultra HD Blu-ray. And in March 2018 Best Buy re- other markets. ported a 16.8% increase in fourth-quarter (ended Feb- CBS All Access, which costs $5.99 monthly with lim- ruary 3) same-store entertainment revenue, compared ited ads and $9.99 without, will launch upwards of sev- to a 18.6% decline in the previous-year period. en original series in 2018, including a new season of

Best Buy remains a key retailer of Blu-ray Discs and DVDs. Netflix is the dominant streaming service. (Photo courtesy of Netflix) (Photo courtesy Best Buy)

ema 2018 Annual Report 29 “Star Trek: Discovery” and the pending reboot of “The changer for the digital sell-through market. Overnight, Twilight Zone” from Oscar-winner Jordan Peele (“Get took its place among the industry’s top digi- RETAILING & STREAMING Out”) – in addition to select live TV, NFL game telecasts, tal retailers.” In December 2016, Comcast inked pacts and catalog programing, Media Play News reported in with Lionsgate, Paramount Pictures, Sony Pictures and March 2018. Universal Pictures to include bonus material and relat- ed movie extras long associated with packaged media. O CHARTER/SPECTRUM ON DEMAND In addi- Access to the digital store is promoted through Com- tion to offering its own online TV subscription ser- cast’s cloud-based X1 settop. X1 upgrades include a so- vice — Spectrum TV Stream — to its broadband-only called “smart” keyboard, a simplified transactional VOD customers ($13 a month for a basic channel package), folder, a personalized screensaver, a power saver, and also is pushing toward more a DVR. original content. In January 2018, Charter said it has Earlier this year, ABC News observed, “Comcast has created a new SVP position to oversee original con- turned its X1 TV set-top box into something resembling tent and filled it with Katherine Pope, who will over- a Roku or Apple TV streaming player, complete with see all original programming initiatives, including the app-like menus and a voice-activated remote. During creation and launch of a planned lineup of new shows the Olympics, X1 merged both TV and online videos to available first on Charter-carried channels. Her portfo- give viewers a one-stop experience.” lio will include Charter’s original-content partnerships Comcast also has embraced Netflix, with the stream- with AMC (struck in April 2017) and (November ing service launching on Comcast’s X1 cable set-top 2017). Pope joined Charter from Studio 8, where she box in November 2016. Philly.com at the time said the was head of TV and helped launch the company’s inde- launch “broadens consumer appeal for their respective pendent TV unit. services and helps Comcast with federal regulators who say that pay-TV companies should integrate tra- O COMCAST Comcast Corporation, the country’s ditional TV and streaming services on set-top boxes.” largest cable TV company, also is a key player in dig- ital movie sales, with an estimated 15% share of the O Crunchyroll is a subscription vid- market, according to a July 2017 report by the Wall eo streaming site focused on Japanese and other East Street Journal. Asian media—including anime, manga, drama, music, Comcast in 2013 became the first pay-TV operator to and electronic entertainment—and content. Founded in sell subscribers digital movies with the launch of its 2006, Crunchyroll’s distribution channel and partner- X1 platform. As Michael Bonner, EVP, Digital Dis- ship program delivers content to more than 35 million tribution, for Universal Pictures Home Entertainment online community members around the world. told Home Media Magazine in January 2017, “Com- Crunchyroll offers over 900 anime shows, more cast’s 2013 entrée into EST was an unequivocal game than 200 Asian dramas to users, and 50 manga titles,

Comcast Xfinity X1 (Photo courtesy Comcast) Crunchyroll

ema 2018 Annual Report 30 1 Moana Disney although not all programming is available world- 2 Wonder Woman Warner Bros. RETAILING & STREAMING wide due to licensing restrictions. In February 2017, 3 Rogue One: A Star Wars Story Disney Crunchyroll passed one million paid subscribers. 4 Trolls Fox 5 Guardians Of The Galaxy: Vol. 2 Disney O DISH CINEMA/SLING TV Sling TV, the stream- 6 Spider-Man: Homecoming Sony ing TV service owned by , was launched in January 2015, marking the first time a multichan- 7 Logan Fox nel video programming distributor (MVPD) offered 8 Fantastic Beasts And Where To Find Them Warner Bros. non-subscribers access to both live TV channels and 9 Doctor Strange Disney on-demand content. Dish in February 2018 said Sling 10 The Boss Baby Fox TV had 2.2 million subscribers as of the end of 2017, putting it well ahead of such rivals as DirecTV Now (1 million subscribers as of December 2017), PlayStation Vue (455,000 as of December 2017), Hulu with Live TV (450,000 as of January 2018), and YouTube TV (300,000 *Excludes NBC Universal. Ranked by transactions as of January 2018). Source: comScore’s Digital Download Essentials Industry Service

Like other virtual MVPD services, Sling TV allows 1 Moana Disney users to choose between various tiers, with prices that 2 Rogue One: A Star Wars Story Disney start at $20/month for a small amount of channels and 3 Wonder Woman Warner Bros. then go up as more channels are added. 4 Sing Universal 5 Spider-Man: Homecoming Sony O FAMILY VIDEO Family Video Movie Club Inc. is Disney the last surviving national video rental chain. Based 6 Guardians of the Galaxy Vol. 2 in Glenview, , Family Video has more than 775 7 Fantastic Beasts and Where to Find Them Warner Bros. stores in the United States and Canada, concentrat- 8 Trolls Fox ed in the Midwest. The chain also operates an e-com- 9 Despicable Me 3 Universal merce site where customers can buy video games as 10 Beauty and the Beast Disney well as used DVDs and Blu-ray Discs. Family Video was founded in 1978 by Charlie Hoogland and remains a privately held, family-owned business. The company owns the land on which its *Title sales are ranked by estimated units sold through the USA brick-and-mortar channel and stores sit and also operates several sister companies, excludes units sold into the rental and online channels. Ranked by sales revenue. including Marco’s Pizza and Stay Fit 24 fitness centers. Source: comScore’s Home Video Essentials “The world of entertainment is growing more and more complicated,” the chain says on its website. “Con- 1 The Accountant Warner Bros. sumers have a lot of confusing choices and trouble- 2 Moana Disney some technology to overcome just to watch a movie. 3 Wonder Woman Warner Bros. We see it very simply: rent a Blu-ray, purchase some 4 Beauty and the Beast Disney popcorn, save some money, and enjoy your evening.” 5 Logan Fox Family Video does not participate in revenue-shar- 6 Deepwater Horizon Lionsgate ing, preferring to buy movies outright and keep 100% 7 The Boss Baby Fox of the rental proceeds. Total sales for 2016, according 8 Passengers Sony to Forbes, are estimated at $400 million. And if a store’s 9 Trolls Fox sales decline, Family Video has been known to shrink 10 Why Him? Fox its foorprint by putting up drywall and leasing out the extra space to such other companies as Subway or H&R Block.

O FANDANGONOW Owned by Fandango, one of * Title rentals are ranked by the estimated number of rentals by consumers in the U.S. brick-and- the three big movie-ticket services, FandangoNow is mortar, subscription-by-mail, kiosk and digital rental channels. Source: comScore’s Home Video Essentials ema 2018 Annual Report 31 a transactional VOD service that was known as M-GO GameFly’s library contains popular new releases as prior to its acquisition by Fandango in 2016. Fandan- well as older back-catalog games. Subscription pricing RETAILING & STREAMING goNow made quite a bit of waves in 2017. An early ranges from $15.95 per month (one game) to $36.95 per February distribution deal with HBO Home Entertain- month (four games). ment gave the service individual current and catalog GameFly also sells new and used games and offers episodes of the network’s original series, from $2.99 DVD rentals. And through the acquisition of Playcast an episode in standard-definition, to as little as $38.99 Media Systems in June 2015, GameFly offers a game for a full season. “Games of Thrones,” “Silicon Valley,“ streaming service in 55 countries around the globe. In “True Detective,” and “Westworld” are among the more the United States, GameFly streaming is available on recent HBO series included. Also in February, Fandan- Samsung Smart TVs and the Amazon Fire TV. GameFly goNow debuted its first original program, “Extreme Streaming employs a patented compression engine to Home Theaters,” a series of short-form videos looking stream video games from such brands as Capcom, Dis- at standout home theater set-ups. The series is aimed ney, Sega, Square Enix, 2K, Ubisoft, and Warner Bros. directly at the home entertainment enthusiast. As a private company (the company filed for an IPO in Not surprisingly, given its ownership, FandangoNow 2010 but never went public), GameFly does not release is more aggressive than most sites in offering sales financial information, but Hoover’s estimates the com- and rentals of on-demand titles tied to new theatrical pany’s 2017 revenue at $34 million. releases. When “Blade Runner 2049” opened in Octo- ber 2017, “Blade Runner: The Final Cut,” the definitive O edition of the 1982 sci-fi classic, was made available for GAMESTOP GameStop is the country’s top vid- rent at just $1.99. eo game retailer. Headquartered in Grapevine, Texas, a suburb of Dallas, the company operates 7,117 retail In March 2018, digital movie collection service Mov- stores throughout the United States, Canada, Australia, ies Anywhere added FandangoNow as its fifth digital re- New Zealand, and Europe. The company’s retail stores tail partner. Amazon Prime Video, Google Play, iTunes primarily operate under the GameStop, EB Games, and Vudu were partnered with the service at launch ThinkGeek, and Micromania brands. last year. GameStop traces its roots to Babbage’s, a Dal- Parent Fandango was founded in 2000, with back- las-based software retailer founded in 1984 by former ing by a group of movie exhibitors. It was subse- Harvard Business School classmates James McCurry quently bought by Comcast; Warner Bros. Entertain- and Gary M. Kusin. In February 2018 GameStop an- ment has a minority ownership as well. Also part of nounced the appointment of a new CEO: Michael K. the Fandango family is the movie-review aggregator Mauler, a 16-year veteran of the company. He replaced Rotten Tomatoes. J. Paul Raines, who stepped down due to health issues. Raines died in March. O FLIXFLING FlixFling is a streaming movie, TV, and music service that lets viewers watch content either GameStop in November 2017 reported a total glob- through monthly subscription streaming or on de- al sales increase of 1.5% to $1.99 billion, resulting in mand, with a purchase option as well. The Philadel- consolidated comparable-store sales growth of 1.9% phia-based company has a catalog of more than 4,000 (+0.6% in the U.S. and +4.6% internationally). New hard- titles. Monthly subscriptions are $7.99. Consumers also ware sales increased 8.8%, led by demand for Nintendo can go to the Channels page and subscribe to a select Switch, and new software sales increased 5.4% driven group of movies at various price points, such as Hol- by a strong title lineup. Pre-owned sales declined 2.4%. lywood After Dark (romantic and “arousing” films like Worldwide omnichannel sales increased by 38.6% on “Bikini Pirates,” $3.99 a month). the strength of new hardware sales. In January 2018, the company said that total global O GAMEFLY GameFly was founded in 2002 as the sales for the nine-week holiday period ended Decem- game industry’s answer to Netflix: a video game-by- ber 30, 2017 grew to $2.77 billion, a 10.6% increase mail subscription service that currently offers games from the 2016 holiday period. Total comparable-store for PlayStation 4, PlayStation 3, PlayStation 2, Play- sales increased 11.8%, growing 13.7% in the U.S. and Station Vita, PSP, Xbox One, Xbox 360, Xbox, , Wii, 7.9% internationally. Worldwide omnichannel sales GameCube, 3DS, DS and consoles. increased 21.5%. ema 2018 Annual Report 32 O GOOGLE PLAY Google Play is an online media Fox, and The Walt Disney Co. It offers two streaming RETAILING & STREAMING store considered one of the big four digital sellthrough subscription plans: one with limited commercials for dealers, along with Amazon, iTunes, and Walmart’s $7.99 a month, and a commercial-free plan for $11.99. Vudu. The store sells and rents movies, TV shows, Hulu has a big library of art-house and foreign films, and other filmed content, as well as video games, dig- although its strength lies in TV series. Hulu offers next- ital music, magazines, and newspapers, and various day streaming of network TV shows and also is devel- Android apps. oping a growing number of original series, including Google Play was launched in March 2012, bringing “The Path,” with Aaron Paul of “Breaking Bad” fame, together the Android Market, Google Music, and Google and the teen soap opera “Runaways.” In 2017 Hulu won eBookstore under one brand. The services operating eight Emmy Awards for “The Handmaid’s Tale,” a web under the Google Play banner are: , television series about a dystopian future following Google Play Console, Google Play Games, Google Play a Second American Civil War in which women, called Movies & TV, , and Google Play “Handmaids,” are forced into sexual and child-bearing Newsstand. Google Play is available globally (except servitude. notably China). In May 2017 Hulu launched a virtual MVPD platform, Google’s biggest success has been in app sales, with offering access to more than 50 channels for $39.99 per a January 2018 report from the App Annie research month. Those channels include ABC, CBS, FOX, NBC firm claiming that worldwide app downloads from the and local affiliates, along with Cartoon Network/Adult Google Play store came in at over 19 billion during the Swim, CNN, ESPN, FX, USA Network and many more. fourth quarter, 145% more than the number of apps At the same time Hulu announced that it has signed downloaded from iOS App Store. a deal with Scripps Networks Interactive to bring their Google in March 2018 released ARCore 1.0, the first channels – including , HGTV, and Travel full version of its toolkit to let any developer easily Channel – into the on-demand and live TV service. make Pokemon Go-like augmented reality apps that In March 2018, Hulu launched a personalized March place virtual objects into the real world. It also allows Madness experience that included push notifications developers to publish those apps to its Google Play for game start times. Store for the very first time. Google says ARCore apps will give users the chance to pretend to be a Ghost- O HUMBLE BUNDLE Humble Bundle Inc. sells down- buster and chase down ghosts lurking in their neigh- loads of popular video games, with a portion of the pro- borhood, or step into a soccer stadium. An official ceeds going to charity. Five percent goes to the Amer- Ghostbusters game called Ghostbusters World is in the ican Red Cross, and another 5% goes to whichever pipeline, as is a look inside FC Barcelona’s Nou Camp charity the buyer chooses. Initially the store sold only stadium, thanks to a partnership between Google “Humble Bundles,” collections of independently devel- and . oped games offered to customers at whatever price they chose to pay. Several of the bundles, available for O HBO NOW HBO Now is a premium subscription ser- just two weeks, surpassed $1 million in sales. Bundles vice launched in 2015 that provides consumers with now include games from established developers and HBO programming for $14.99 a month, without a cable AAA publishers, with a regular store front for individual package. HBO Now offers on-demand access to HBO’s game sales. entire library of original series, as well as original films and documentaries, along with acquired films from its The Humble Bundle concept was initially run by Wol- library through the cable channel’s content partners fire Games in 2010, but by its second bundle, the com- (such as 20th Century Fox, Universal Pictures and HBO pany was spun off to manage the promotion, payments, sister company Warner Bros. Pictures). and distribution of the bundles. In October 2017, the As of February 2018, HBO Now has 5 million sub- company was acquired by Ziff Davis through its IGN En- scribers, according to Bloomberg. tertainment subsidiary, though will continue to operate as a separate subsidiary. O HULU Hulu is one of the big three streaming giants, By September 2017, the total amount of money raised behind Netflix and Amazon. The SVOD service is jointly for charity through Humble Bundle sales exceeded owned by Comcast Corp., Time Warner, 21st Century $100 million across 50 different charities. ema 2018 Annual Report 33 1 Call of Duty: WWII Activision Blizzard 1 League of Legends Tencent RETAILING & STREAMING 2 NBA 2K18 Take Two Interactive 2 Honour of Kings Tencent 3 Destiny 2** Activision Blizzard 3 Dungeon Fighter Online Nexon 4 Madden NFL 18 Electronic Arts 4 Fantasy Westward Journey NetEase 5 : Breath of the Wild Nintendo 5 Crossfire Neowiz Games 6 Grand Theft Auto V Take Two Interactive 6 Monster Strike Mixi 7 Tom Clancy's Ghost Recon: Wildlands Ubisoft 7 Clash Royale Supercell 8 Star Wars: Battlefront II 2017** Electronic Arts 8 Clash of Clans Supercell 9 Super Mario Odyssey* Nintendo 9 Fantasy Westward Journey Online II NetEase 10 Mario Kart 8* Nintendo 10 Fate/Grand Order Aniplex Inc.

PC Games Software only includes full games downloads from Steam and excludes other PC digital Source: SuperData Research, Inc. retailers such as Origin and Uplay. *Digital sales not included. **PC digital sales not included. Source: The NPD Group, Inc.

O MICROSOFT XBOX GAME STORE The Microsoft studios as well as Amazon, FandangoNow, Google Play, Xbox Game Store is an online store where gamers iTunes, and Walmart/Vudu. “Microsoft is committed to can buy consoles, games, VR headsets, and accesso- delivering rich entertainment experiences to our cus- ries. Members who sign up for Xbox Live Gold - $9.99 tomers,” a Microsoft spokesperson told Thurrott.com. a month or $59.99 a year – get benefits such as free “And we’re in discussions with Movies Anywhere about games and demos as well as discounts on a weekly bringing their service onboard.” group of featured games. Microsoft last year launched Xbox Game Pass, a vid- O NETFLIX Netflix is the 800-pound gorilla of the eo game subscription service with 100 Xbox One and streaming world. Originally a disc-by-mail video rental Xbox 360 games, all fully downloadable. In February service aimed at consumers frustrated with late fees 2018 Microsoft announced that all Xbox One exclusive and return trips to video stores, Netflix took the month- games would be heading to Xbox Game Pass. ly subscription model to the nascent streaming world in 2007 and never looked back. O MICROSOFT MOVIES AND TV Microsoft Movies Based in Los Gatos, California, Netflix expanded its and TV is an online video service that offers movies and TV shows for rent as well as purchase. Purchased con- rapidly growing subscription streaming business inter- tent can be viewed on any Windows 10 or Xbox device nationally, beginning with Canada in 2010, and within or downloaded for future offline viewing. It is available six years was operating in 190 countries. Netflix began in more than 20 countries. producing original content in 2013, with its first series, “House of Cards,” and now vows to ultimately produce In October 2017, Microsoft updated Microsoft Movies 50% of the content it airs. Netflix released an estimated and TV with support for 360-degree video (via Aggior- namentilumia). This new feature is part of Microsoft’s 126 original series or films in 2016, more than any oth- Mixed Reality efforts in Windows 10, and will use a mo- er network or cable channel. tion controller to be able to move around the 360-de- As of January 2018, Netflix has nearly 118 million gree content. paying subscribers worldwide, nearly 55 million of Microsoft’s Movies & TV isn’t currently available on them in the United States. Overall, Netflix generated the web, iOS, or Android, but in March 2018 a company net income of $185.5 million on revenue of $3.3 billion spokesman said it may join Movies Anywhere, in 2017 – up from income of $66.7 million on revenue of a digital movie service backed by five of the six major $2.5 billion in 2016. ema 2018 Annual Report 34 Founder Reed Hastings in March 2018 said the com- And PlayStation Now is a video game streaming ser- RETAILING & STREAMING pany expects to generate $15 billion in user fees in 2018 vice with more than 600 PS3 and PS4 games that are – almost twice the $8 billion it will spend on original streamed directly to users’ PS4s or PCs. content. Netflix now has more domestic subscribers than all of combined. Speaking at a Los O REDBOX Redbox is the country’s leading video rent- Angeles tech event, he reiterated Netflix has no desire al dealer, operating not a chain of physical stores but, to pursue live sports – unlike rival Amazon Prime Vid- rather, a fleet more than 40,000 bright-red video rent- eo – focusing instead on original episodic programming al kiosks outside Walmarts, supermarkets, and drug and feature films. Also in March, Netflix announced its stores. Consumers can rent DVDs, Blu-ray Discs, video first original (and local language) programs for SVOD games, and in a growing number of kiosks, 4K Ultra HD services in Turkey and Poland. Blu-ray Discs. The Seattle-based company for years was at odds O The Nintendo eShop is a digital NINTENDO ESHOP with studios that claimed its low-cost rentals cannibal- distribution service powered by the ized movie sales, prompting three of the six majors to for the Nintendo 3DS, Wii U, and new Nintendo Switch, institute month-long holdbacks. But those battles are and by a dedicated online infrastructure for Nintendo now largely over, with all studios selling new product Switch. It was founded in June 2011. to Redbox-direct and on time-with the exception of The Walt Disney Co., which is suing the kiosk operator over O PLAYSTATION The Sony-owned PlayStation Store the sale of digital movie codes. is a digital media store aimed at users of Sony’s Play- Station 3, PlayStation 4, PlayStation Vita, and PlaySta- A little more than three years after abandoning tion Portable game consoles via the PlayStation Net- a failed SVOD venture with Verizon, Redbox in Decem- work. The store has five divisions and is available in ber 2017 launched Redbox On Demand, a digital dis- approximately 70 countries. tribution service with more than 6,000 movie and TV show titles available for on-demand streaming or pur- The PlayStation Store (also known as PlayStation chase and digital deals with all major studios except Games) offers a wide range of downloadable content for Disney. both for purchase and for free. This content includes full games, add-on content, playable demos, themes, “Our customers come to us for that transactional and game/movie trailers. experience - it’s Friday night, and they want to watch a specific movie,” Redbox CEO Galen Smith told Media PlayStation Video sells and rents digital movies and Play News in January 2018. “We try to satisfy them sells digital TV shows. The service in 2015 premiered with our kiosk network, but there are occasions where its first original series, “Powers,” base on the Marvel you might not want to go out and rent a movie from comic book. a kiosk. So rather than lose that transactional occasion, PlayStation Vue (PS Vue) is a streaming TV service we’re giving them the chance to get it online.” owned by Sony. Launched in March 2015 as a multi- Redbox in January 2018 rolled out a revamped loy- channel video programming distributor, PlayStation alty program, Redbox Perks. Replacing Redbox Play Vue combines live TV (various cable-originated tele- Pass, Redbox Perks gives customers more oppor- vision channels), on-demand video, and cloud-based tunities to earn points, which can then be redeemed DVR to stream movies, TV shows, and sporting events for free rentals and other rewards, through a tiered directly to a PlayStation console or other supported de- VIP program. vice – including smart TVs, digital media players, and apps – without a subscription to a cable or satellite Under Redbox Perks, instead of just earning points television provider. As of December 2017, the service per rental, customers will now earn points per night. had approximately 455,000 subscribers. Additionally, customers now have the opportunity to PlayStation Music is an on-demand music streaming earn higher point values when renting Blu-ray Discs service powered by Spotify. Subscribers get free and and video games. premium access to over 30 million tracks. The service In March 2018, new data from TiVo said the percent- is available in 41 markets via the PlayStation Network age of consumers renting or purchasing movies from on PlayStation 3, PlayStation 4, Xperia tablet, and Redbox increased in the fourth quarter 2017 from Q3. mobile devices. In a survey of 3,000 respondents, TiVo found that 12.5% ema 2018 Annual Report 35 of respondents used Redbox in Q4 compared to about Sony-distributed TV series such as “Damages,” “Res- 10% in Q3. Redbox usage topped iTunes (7.9%), Google cue Me,” “The Shield,” and “Seinfeld.” RETAILING & STREAMING Play (7.2%), YouTube Movies (4.8%), Vudu (3.7%), Cine- In January 2018 Sony Crackle released a virtual re- maNow (2.2%), (1.5%), and other (1.4%). ality experience as it headed into production of sea- son two of the original series “Snatch.” The Snatch VR O SHOWTIME ANYTIME The Showtime network’s Heist Experience is a six-minute experience designed to premium subscription service launched in July 2015. transport the viewer into the middle of a diamond heist. For $10.99 a month, subscribers get instant and unlim- Initial availability was limited to the Sony PlayStation ited access to commercial-free Showtime original se- VR, which connects to PlayStation 4 gaming consoles. ries, movies, documentaries, comedy specials, sports and more. Subscribers also can download full episodes O STEAM Steam is the largest plat- and movies to their favorite mobile devices and watch form for PC gaming. By early 2018, the service had them offline, whenever and wherever they want to. more than 150 million registered accounts, with a peak Showtime Anywhere is one of the few streaming ser- of 18.5 million users online at the same time. The suc- vices to offer this option. cess of the Steam platform has led to the development of a line of Steam Machine microconsoles, as well as the SteamOS . O SONY CRACKLE Sony Crackle (prior to January 2018, just Crackle) is a free ad-supported video stream- The served launched with seven games in 2004 and ing site owned by Sony Pictures Home Entertainment. as of December 2017 now sells over 18,000 games, The site was founded in the early 2000s as Grouper nearly 8,000 of which were added in 2017. It also offers and rebranded to Crackle in 2007. It offers original a selection of movies for rent. web shows, movies, and TV shows, including many Steam is available in most countries and 26 languag- , Films, , es. The site’s games can be accessed on PC, Mac, Linux , and TriStar Pictures films and box, mobile devices, and connected TVs.

DISC RENTAL BUSINESS MODELS 2012-2022 Kiosk Subscription (% of Consumer Revenues) Traditional

41% 46% 51% 54% 56% 60% 65% 69% 72% 73% 73%

31% 28% 27% 25% 23% 22% 19% 17% 28% 16% 26% 15% 15% 22% 21% 21% 18% 16% 14% 13% 12% 11%

2012 2012013 2014201 2015201 2016201 2017201 2018 2019201 2020 2021 2022 projected Source: IHS Markit ema 2018 Annual Report 36 O TARGET Target Corporation is the second-largest RETAILING & STREAMING discount store retailer in the United States, behind Walmart. The Minneapolis chain, with 1,812 stores as of 2017, has long been a big seller of DVDs and Blu-Ray Discs and along with Walmart was a key player in driv- ing mass adoption of DVD, using discs as a loss leader to drive traffic into its stores. In February 2018, Billboard reported that in the fourth quarter of last year Target informed music and video suppliers that it wants to switch to scanned- based trading As of February 1, the chain only pays for DVDs after they are scanned while being rung up at the register or sold online, Billboard says, with music Redbox CEO Galen Smith (Photo courtesy Redbox) suppliers slated to go the same route in Spring 2018.

O TOYS “R” US The long-struggling toy store chain February 2018, it has 2 million broadcasters monthly, filed for Chapter 11 bankruptcy protection in Septem- and 15 million daily active users. ber 2017 but was unable to successfully reorganize In February 2018, Amagi, a global leader in cloud- and decided to liquidate on March 15, 2018. The vet- based technology for TV and OTT broadcasters, an- eran toy retailer sold family-friendly DVDs and Blu-ray nounced that , a leading independent content Discs, as well as video games, in its physical stores distributor, has deployed the company’s cloud-based and on its website. The chain as of March 2018 had channel playout platform, CLOUDPORT, to bring its 881 Toys “R” Us and Babies “R” Us stores in the United CONtv channel to Twitch. CONtv is a premier digital States, Puerto Rico and Guam, and in 840 internation- network devoted to the fan space, offering an original al stores and over 265 licensed stores in 38 countries slate of programming, as well as a vast digital catalog and jurisdictions. of over 2,800 film and TV titles, encompassing sci-fi, horror, fantasy, anime, cult, grindhouse, and comic con O TRANS WORLD ENTERTAINMENT The last of coverage. The 24/7 linear offering on Twitch features the big music chains, Trans World Entertainment sells a variety of the fan-centric content aligned with the CDs, DVDs, Blu-ray Discs, and video games through its streaming service’s audience. nearly 260 U.S. stores – which operate under various brands, primarily F.Y.E – and their websites. In 2016, O VERIZON In the wake of its June 2017 acquisition Trans World Entertainment acquired etailz Inc., an of Yahoo! for $4.5 billion, Verizon is looking to lever- independently operated digital marketplace retailer age the billion-plus combined users of Yahoo and AOL across all product categories. etailz uses a data-driv- (which Verizon acquired for $4.4 billion in 2015) to en approach and proprietary software to grow brands launch a new over-the-top service, targeting digital- on Alibaba, Amazon, eBay, Jet, and Walmart in the U.S. only consumers. and internationally. Nomura in December 2017 reported that, after a se- In January 2018, the company reported that sales at ries of delays, the company will launch its platform by its flagship F.Y.E. chain in its latest fiscal year declined the end of 2018. Also in December, Verizon announced 15% to $248 million from $291.7 million. etailz.com rev- a partnership with the NFL to distribute live football enue topped $158 million. “The F.Y.E. segment contin- games on Monday, Thursday, and Sunday nights – ues to be impacted by declining mall traffic, the general putting it in direct competition with AT&T’s DirectTV accelerated decline in the physical media business and Now service. the specific lack of strong franchises resulting from the lowest summer box office in 25 years,” CEO Mike Feur- According to a January 2018 Tech Crunch report, Ver- er said in an earnings release. izon’s service will bundle content together in themed “channels,” each its own standalone app and with O TWITCH Owned by Amazon, Twitch ventured beyond a focus on a specific topic like news, sports, or enter- video game streaming in April 2017 when it began sell- tainment. All this would still be separate from the com- ing PC games and in-game content on its site. As of pany’s existing mobile video service as well. ema 2018 Annual Report 37 RETAILING & STREAMING

Walmart’s Vudu is a digital movie platform that celebrated its 10th YouTube Red is a paid, premium alternative to YouTube’s free anniversary in June 2017. (Logo courtesy Walmart/Vudu) service. (Photo courtesy YouTube)

O WALMART/VUDU Unlike its fellow mass mer- 2012. Consumers can also convert discs from a com- chant, Target Corporation, Walmart shows no signs of puter at Vudu.com. cutting back on packaged media sales. The footprint In August 2017, Vudu arrived on Apple TV. The new devoted to product has shrunk a bit over the years, but app allows users to watch the movies and TV shows the company remains one of the top retailers of DVDs saved to their Vudu libraries, but like its iOS counter- and Blu-ray Discs, as well as video games. part, the Apple TV version of Vudu doesn’t allow them Based in Bentonville, Arkansas, Walmart was found- to rent or buy videos through the app directly. Instead, ed by Sam Walton in 1962 and as of January 31, 2018, they have to make a purchase through the browser or has 11,718 stores and clubs in 28 countries, operating another device first. under 59 different names. Of those stores, 4,761 are O in the United States, accounting for more than 62% of YOUTUBE RED YouTube Red is a subscription total sales. streaming service launched by YouTube as a paid, pre- mium alternative to its free service. YouTube Red pro- Walmart in February 2018 reported a low single-digit vides advertising-free streaming of all videos hosted increase in same-store entertainment sales during the by YouTube, offline play and background playback of fourth quarter (ended January 31), driven by the win- videos on mobile devices, access to advertising-free ter holidays. It was the strongest entertainment quar- music streaming through Google Play Music, and ac- ter in the fiscal year. (Walmart doesn’t disclose actual cess to “YouTube Red Original” series and films. revenue figures.) “Entertainment” includes electronics, The service was originally launched in November toys, cameras and supplies, photo processing services, 2014 as Music Key, offering only ad-free streaming of cellular phones, cellular service plan contracts and music and music videos from participating labels on prepaid service, DVDs, Blu-ray Disc movies, music CDs, YouTube and Google Play Music. video games, and books. Engadget in February 2018 reported that, while Face- Walmart also owns Vudu, a digital movie platform book and Netflix are spending billions on new program- that celebrated its 10th anniversary in June 2017 by ming, “YouTube is said to be holding its investments offering 10-cent movie rentals on select catalog titles. at current levels. Google’s video wing is only spending Other special offers included $4.99 weekend mov- ‘a few hundred million’ on original shows for Red this ie rentals and $10-and-under TV weekends. Vudu in year…. Unlike the competition, YouTube also has a live March 2017 upgraded its app, giving users — for a fee TV service that’s expanding in reach. Google could just — access to cloud-stored digital versions of their DVD/ be taking a ‘wait and see’ approach to its investments Blu-ray Disc collections from a smart phone or mobile this year.”O device. Converting discs to standard-definition costs $2 each, while converting them to HD (1080p) costs $5. The app effectively extends Walmart’s in-store disc-to-digi- tal service, which was launched with studio support in ema 2018 Annual Report 38 How would you sum up the cur- The third trend is the growth of 4K, MARK FISHER Q&A Q: rent state of the home enter- UHD, and HDR, increasing the quality tainment business? of the presentation of the content. In a word, evolving. We are seeing In the video game sector, the domi- consumers continuing to transition nance of mobile gaming continued to from traditional physical media by expand. That shows that it is engag- supplementing it or replacing it with ing all consumer segments. digital. Hardware is evolving, with What do you foresee happening even higher quality video and audio in 2018? thanks to 4K, UHD, and HDR. The Q: I expect to see four things in business models are changing, with 2018: growth in TVOD, broad em- SVOD, EST, TVOD, and AVOD. brace of Movies Anywhere, more And that evolution is happening in consumers owning 4K devices, and video games as well. Digital is grow- industry consolidation. ing, new hardware like the Nintendo Regarding TVOD, I suspect that Switch and VR headsets are chang- some consumers will start to look ing the experience, and code cards for new release features that are not have created a new revenue source available on SVOD, but won’t neces- for retailers. sarily want to purchase them. TVOD The evolving industry obviously provides an excellent option in the creates some challenges. The in- middle between SVOD and EST. dustry is still trying to figure out I’m sure we are going to see more how to change the old dynamics to content providers and retailers en- better meet the 21st century con- gage with Movies Anywhere. I think sumer’s expectations for access to content. But we’re figuring it out and the potential for Movies Anywhere is as we do so it’s an exciting time in tremendous and everyone will want our industry. to participate. What were the most significant As more consumers are exposed to trends we saw develop in 2017? the quality leap of 4K, and as prices Q: continue to decline, they will switch First and foremost, content, con- to 4K devices just like what hap- tent, content. There is more content pened with HDTVs a few years back. MARK FISHER available in more places than ever before. And original content has re- The pending Disney acquisition of ally transformed the OTT ecosys- Fox and the liquidation of Toys ‘R’ Us tem – there’s a tremendous amount are two examples of industry consol- of really good original content out idation. It’s important to keep in mind there. I can’t keep up with it all! It’s that industry consolidation creates axiomatic, but content truly drives opportunities for others to expand or consumer engagement. enter the market to fill any voids that Q&A Related to that is shared enti- may be created. tlements for content. Movie Any- The shift toward same-day where was able to offer more con- Q: home release of movies ap- tent, from more studios, through pears to have stalled. What is the more retailers. The result is that it future of PVOD - will it ever happen? is now more attractive for people It will happen when the consumer to store their content in the cloud, makes it happen. The continued im- access it on a variety of devices, provement in the in-home viewing and view it either online or offline. experience, in terms of hardware That’s transformational. and 4K, makes consumers desirous ema 2018 Annual Report 39 of viewing the latest hit movies at Absolutely. It’s all about the qual- who value the digital versions of home at the earliest possible date. ity of the content. Look, how does games. The physical goods retailers, MARK FISHER Q&A And consumers will find a way to get a $60,000 Mercedes compete with both brick and mortar and online, the content they desire one way or a $24,000 Ford Fusion? They both also serve an important function in the other - including, unfortunately, serve the same basic function, but the video game ecosystem by provid- by piracy - in that window between there is still a demand for the Mer- ing a venue for consumers to explore theatrical and home video release. cedes. Likewise, discs, EST, and and discover the breadth of video Eventually, those in a position to TVOD are not competing on the basis game offerings. make PVOD happen will realize it’s of price, but rather on the quality of What’s on EMA’s agenda best to meet that consumer demand the content, the selection, and when Q: for 2018? by providing a PVOD option. it can be accessed. EMA is focusing on four key initia- But PVOD is disruptive, so there is All the major SVOD services tives in 2018. an institutional bias against it from Q: seem to have their own orig- First, we are increasing and en- those who benefit most from the inal content. Do you think that’s hancing our support for creating ef- current windowing – movie theaters. cannibalizing the market for ficiencies in the digital supply chain, They will eventually have to yield. If studio features? both for video and for video games. the current softness in the theatri- Not at all. With their original con- We have increased our human re- cal box office continues, the studios tent, the SVOD services are follow- sources investment in this area and will become more willing to exper- ing a well-traveled path of retail of are increasing the scope and fre- iment to find ways to replace the providing exclusives to differentiate quency of our activities. lost revenue. themselves in the marketplace. The Second, we are building a bigger, ability to watch “The Man in the High With the continued surge in broader, and better En- Castle” on Amazon doesn’t make me streaming, are we seeing tertainment Summit, the industry’s Q: any less likely to purchase or rent a fundamental shift in our enter- premier annual business-to-busi- “The Shape of Water.” tainment habits? Are we less in- ness get-together. We are going to After a lot of attention in 2016, clined to watch new movies simply accommodate more market seg- VR seemed to stall in 2017. Do because of streaming’s low price Q: ments to make sure the full spec- you foresee an uptick, or are we and convenience? trum of industry business models looking at a niche business, like 3D? can participate. Perhaps, but I view it as more of There are a number of areas where Third, and related to the second, a transient phenomenon. SVOD cer- VR is being used effectively, includ- we are growing our representation tainly has an attractive value propo- ing video gaming to a degree. But VR to additional segments of the OTT sition and has gotten the consumer has not gotten the traction I would market, specifically SVOD and AVOD. to embrace digital home video. The have expected in home video. No one Historically, EMA developed from a trade-off for consumers is to accept has yet to figure out how to make it transactional business model, and what’s available through streaming a compelling experience rather than, we’re breaking out of that mind- services as “good enough” to meet and I hate to use this word, a gim- set to be representative of home their entertainment needs, given the mick in home video. I expect that entertainment today. price and convenience. someone will figure out the formula Finally, to fill a need in the video I think there is going to come a for transforming VR in home video game sector, we are launching our time when “good enough” will not into a compelling experience. first-ever Game Summit. Similar in be good enough anymore. Then con- Do physical goods retailers still format to the Los Angeles Enter- sumers will look elsewhere for their Q: have a role to play in the video tainment Summit, the EMA Game desired content, including new re- game market? Summit will consist of two days of lease product on EST, TVOD, or discs. , they do. There remains a sig- one-on-one business meetings be- So you think movie sales, phys- nificant segment of video game con- tween video game publishers and Q: ical and digital, and the TVOD sumers that prefer discs, and the key retailers. model in general can compete with physical goods retailers have ex- We’ve got a lot on our plate, but we the lure of an all-you-can watch buf- panded their offerings, through code realize we need to invest in these ar- fet for $10 a month? cards and the like, to service those eas to support the industry.O ema 2018 Annual Report 40

EMA OVERVIEW Overview

The Entertainment Merchants Association (EMA) is a not-for-profit international trade association whose mission is to: • Protect the rights of, • Foster the health and vitality of, and • Provide a forum for those engaged in the sale, rental, and/or commercial delivery of video or video game content to consumers through physical media or over-the-top Internet-based delivery. EMA-member companies operate physical and digital retailing, digital platforms, and streaming services around the world, offer content for retailers and streaming services, and provide service and technol- ogy for the industry. Membership comprises the full spectrum of retailers, distributors, the home video divisions of major and independent motion picture and television studios, video game publishers, and other related businesses that constitute and support the $55 billion home entertainment industry. EMA’s activities include presenting conferences, Overview of the networking, and information sharing opportunities, ENTERTAINMENT developing and promoting industry standards, specifi- cations, and best practices, engaging with government MERCHANTS entities, and providing education assistance. ASSOCIATION EMA was established in April 2006 through the merg- er of the Video Software Dealers Association (VSDA), founded in 1981, and the Interactive Entertainment EMA Merchants Association (IEMA), organized in 1997.O

ema 2018 Annual Report 41

Events Supply Chain and Retailing Activities EMA OVERVIEW Digital EMA Annual Forum at CES Video Retail and Game Retail Councils – These coun- (January, Las Vegas) – An overview of the lat- cils of retailers and distributors explore, evaluate, and est industry trends, presentations by thought employ opportunities to grow and sustain the health leaders, and an update on EMA’s digital of these industries. These councils also meet with the activities that advance the digital supply chain, industries’ key product suppliers. digital retailing, and the distribution of movies and TV content. Digital EMA – EMA’s community of retailers, distribu- tors, content providers, and service & technology pro- NAVD Business Sessions (Spring, Los Angeles) – Key video distributors viders identifies and pursues opportunities to develop discuss business issues in one-on-one meet- a growing and healthy business of digital video and ings with major motion picture studios. video game distribution. Digital EMA Annual Forum at NAB Digital Supply Chain Initiatives – Within the Digital EMA (Spring, Las Vegas) – A discussion of topics community, the Digital Supply Chain Committee and related to OTT delivery of video content. associated workgroups seek solutions that enable inno- Video Game Summit vation and increase efficiency, reliability, and scalability (Varies, Texas and Minneapolis) – Two days of in the digital distribution of home entertainment: one-on-one business meetings between video • Digital Supply Chain Committee – Oversees and prioritiz- game publishers and key retailers. es the initiatives undertaken by the digital supply chain Digital Media Pipeline workgroups in order to optimize the delivery of digital (Spring, New York City & Fall, Los Angeles) content and its associated components from the con- – One-day conferences for digital entertain- tent providers through service providers and ultimately, ment content owners, retailers, and service through retailers/distributors, to the consumer. & technology providers focusing on busi- • Asset Ordering and Tracking Workgroup – Currently in ness-to-business opportunities, consumer trends, and the latest technologies in the the process of drafting and publishing best practices and digital delivery of home entertainment specifications for digital asset ordering and tracking. to consumers. • Avails Workgroup – Developed and evangelizes Los Angeles Entertainment Summit a standard structure for the communication of content (Summer, Los Angeles) – The premier busi- availability metadata via both Excel and XML from ness-to-business forum for retailers, distribu- content providers to digital retailers and distributors. tors, motion picture studios, and other home • Media Manifest/Metadata Workgroup – Jointly devel- entertainment industry suppliers. The Summit oped with MovieLabs and promotes the Media Manifest is comprised of three days of one-on-one meetings, research presentations, and net- Delivery Core, which is used to identify assets – such as working events. This event has also provided video and audio , trailers, subtitles, closed captions, a platform for fundraising by the Cystic Fibro- and images – that are delivered to an online distributor sis Foundation, and to-date LAES has raised for a video title, thus organizing the “packaging” of the more than $1.5 million for CFF. multitude of files needed for online video; developed and Digital EMA Annual Forum at LAES promotes EMA’s Metadata Structure. (Summer, Los Angeles) – An overview of • QC Nomenclature Workgroup – Standardized the termi- the latest industry trends, presentations by nology for 116 errors commonly encountered in onboard- thought leaders, and an update on EMA’s dig- ing and provided a description for each; currently updat- ital activities that advance the digital supply ing and expanding the terms, creating error codes for chain, digital retailing, and the distribution of each, and developing an error code information model. movies and TV content. • SVOD Rights Communication Workgroup – Identified Digital EMA Salons retailer requirements for communication of rights to titles (Quarterly) – Casual evening get-togethers licensed for subscription VOD; currently coordinating with featuring networking and roundtable discus- content providers to determine their needs. sions for those engaged in digital entertain- ment. Salon events are held throughout the year in California and New York City. ema 2018 Annual Report 42

EMA OVERVIEW Public Policy Advocacy Board of Directors EMA is engaged at the federal, state, and local level The Entertainment Merchants Association is on issues of importance to the home entertainment governed by a Board of Directors representing the key industry. EMA’s public policy priorities are to: retailers and distributors of both physical and digital • Protect retailers’ right to sell and rent lawfully made entertainment content for filmed entertainment and copies without restraint (the First Sale Doctrine). video games and the companies that service the in- dustry. The Board is responsible for the association’s • Support strong laws against video piracy and policies and strategic direction. vigorous enforcement of those laws. • Support voluntary enforcement of OFFICERS/EXECUTIVE COMMITTEE entertainment ratings. Chair • Oppose restrictions on entertainment based on Jonathan Zepp Google Play violent content. Vice Chair • Oppose discriminatory taxation of home Cameron Douglas Fandango entertainment products. Secretary • Support efforts to combat Organized Retail Crime. Marty Graham comScore • Ensure that secondhand goods laws do not unduly Treasurer interfere with the market for used videos and Suyin Lim Sony PlayStation Video video games. At-Large Michele Edelman Vubiquity EMA Scholarship Foundation Bob Geistman Ingram Entertainment DIRECTORS The Scholarship Foundation Amit Balan Vudu awards scholarships to under- graduate and graduate students. Justin Decosse Target Corporation Employees and families of employees of all member Lori Flynn Redbox Automated Retail, LLC companies are eligible to apply. Since its inception, the Pedro E. Gutierrez, Jr. Microsoft Corporation Foundation has provided financial assistance totaling Steve Harkins Baker & Taylor more than $1,000,000. Matt Hill Amazon Bill Miller Trans World Entertainment Jason Peterson ContentBridge Systems Mark Vrieling ScreenPlay, Inc.

Acknowledgements EMA expresses its gratitude to the following companies that contributed data for this report: App Annie J.P. Morgan AUTHOR Carnegie Mellon University Leichtman Research Group JCH Media Inc./www.JCHMediaInc.com comScore Media Play News DESIGN & LAYOUT Consumer Technology Association Morgan Stanley Allison Gritton/Gritton Design DEG: The Digital Entertainment Group MUSO Deloitte Newzoo EMA CONTRIBUTING STAFF Digital TV Research Nielsen Mark Fisher Entertainment Software Association The NPD Group President & CEO Filmora Frank N. Magid Associates Sean Devlin Bersell Futuresource Consulting Parks Associates Senior , Public Affairs Home Media Magazine Screen Engine/ASI IDC Strategy Analytics Carrie Dieterich IHS Markit Technology TiVo Senior Vice President, Strategic Initiatives Irdeto

ema 2018 Annual Report

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