Report: Netflix Beats Apple as No. 1 Online Movie Supplier

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Gareth Cattermole / Getty Images for Netflix

After building a powerful subscription video-on-demand business virtually overnight, Netflix passed Apple last year to become the top revenue earner in the U.S. online movie business.

So reported research firm IHS Screen Digest Friday, putting Netflix’s share of online movie distribution dollars at 44 percent compared to just 32.3 percent for Apple (see chart).

Revenue from movie and TV show sales on Apple’s iTunes store actually increased in 2011, IHS reports. But that growth was dwarfed by the explosion of subscription streaming.

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Overall, Apple’s market share of online movie dollars shrunk from 60.8 percent in 2010 to just 32.3 percent in 2011. Netflix grew to its dominant position from owning less than 1 percent of the market at the start of the same period, as the explosion of the subscription video on demand sector more than doubled the size of the overall online movie business to around $992 million. (IHS expects it to once again double this year.)

Driven by Netflix, subscription streaming grew 10,000 percent in 2011, according to the report, from $4.3 million in 2010 to $454 million. Sales of VOD services — the so-called “transactional” business — grew only 75 percent to $273 million.

“We are in the midst of a significant change in the way people pay to consume movies online,” said Dan Cryan, research director for digital media at IHS. “All the significant growth in revenue in the U.S. online movie business in 2011 was generated by rental business models, which provide temporary access, not permanent ownership.”

Serving two different markets

Cryan noted that Apple and Netflix are in some sense complimentary, with up to 80 percent of movie transactions on iTunes relating to newer releases while Netflix is more focused on older titles.

“Effectively the market has split,” Cryan said. “Netflix and Apple are competing for some of the same consumer time and money. However, the core value proposition of the two services is actually very different.”

The end of ownership?

But any way you slice the data, it’s not a good sign for companies like Apple, as well as Hollywood’s major studios, which are trying to establish cloud-based digital distribution systems based around media ownership.

With consumers less interested in owning movies and TV shows, physical media continues to take a huge hit.

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A separate report also issued by IHS Screen Digest Friday showed the amount U.S. households spent on DVD and Blu-ray titles last year declined 11 percent to $133.31, with only 61 percent of that total coming from higher-margin purchases. Five years earlier, that per-house expenditure was $206.78.

Overall, revenue in the U.S. from disc sales declined 12 percent to $8.8 billion in 2001. IHS expects it to drop to $5.4 million by 2016, leaving the size of home entertainment’s packaged media market at mid-1990s VHS-era levels.

Republished with permission from paidContent, which writes about the transformation of the media-and-entertainment industries in the digital era, with a focus on emerging-business models and technologies.
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