Netflix peels Apple in US online films

Joseph O'Halloran ?RapidTVNews | 04-06-2012

In a stark indication of the growing demand for films delivered over online channels and its services in particular, over the top (OTT) service provider Netflix has swept to revenue leadership in the US online movie business.

What makes the leadership even more impressive, according to a new IHS Screen Digest Broadband Media Market Insight Report, is that Netflix has achieved this in just under two years moving from a 0% revenue share to 44% of the market. By contrast Apple?s share declined in sequence from 71.5%, 60.8% and now 32.3% in the years 2009 to 2011.

The research also showed that the two companies totally dominate the online film market with the next leading player, Microsoft and Vudu, having only 7.6% and 4.2% revenue market shares respectively.

?2011 marked a sea change in the online movies business that saw the balance of consumer spending shift from a DVD-like transactional model to more TV-like subscription approach,? said Dan Cryan, research director for digital media at HIS, commenting on the research. ?The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.?

?We are in the midst of a significant change in the way people pay to consume movies online?All the significant growth in revenue in the US online movie business in 2011 was generated by rental business models, which provide temporary access, not permanent ownership. Rental delivers unlimited consumption with a low monthly fee for older titles as well as cheap rentals of new releases, providing the kind of value that online consumers want. In contrast, EST, which is much more profitable for studios on a per-transaction basis, is stuck in the doldrums,? Cryan added.

IHD attributes this change Netflix?s decision to start charging directly for online access, and the major growth in the number of people using online subscription video on demand (SVOD).

The analyst also calculated that in the US revenue from subscription VOD services reached $454 million in 2011, growing by more than 10,000% from $4.3 million in 2010. As a result, said the analyst, SVOD became the largest segment of the online movie business in 2011, surpassing the other major parts of the market, transactional VOD and electronic sell-through.

Looking forward IHD Screen Digest says that Netflix's customer transition is now complete and that while its effect will be felt into 2012, which will be the first full year of paid streaming, Netflix's U.S. digital customer base is likely to expand at a slower rate, in keeping with premium pay-TV channels. Consequently, IHS expects transactional VOD to experience stronger growth than SVOD after 2012. This may though change if unless there is a significant market entry, such as a standalone HBO streaming subscription or a full-fledged pay-TV subscription service delivered over the open Internet.

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