MUMBAI: Americans will pay to consume more movies online this year than they will on physical video formats, marking the first year that legal, Internet-delivered movies will outstrip those of DVDs and Blu-ray discs combined.
The legal, paid consumption of movies online in the United States will reach 3.4 billion views or transactions in 2012, approximately 1.0 billion units higher than the 2.4 billion for physical video for this year, according to the IHS Screen Digest Broadband Media Market Insight report from information and analytics provider IHS. As recently as last year, physical video had claimed a commanding share of the market with 2.6 billion views or transactions, compared to 1.4 billion for online.
This year’s online video consumption via the open Internet represents annual growth of 135 per cent from 2011. Online video transactions and videos are also set to continue increasing in the years to come, while physical video sales are expected to decline or stagnate in comparison.
IHS senior principal analyst, broadband, digital media Dan Cryan said, “The year 2012 will be the final nail to the coffin on the old idea that consumers won’t accept premium content distribution over the Internet. In fact, the growth in online consumption is part of a broader trend that has seen the total number of movies consumed from services that are traditionally considered ‘home entertainment’ grow by 40 percent between 2007 and 2011, even as the number of movies viewed on physical formats has declined.”
The physical segment consists of retail sales and rentals of VHS, DVD and Blu-ray discs (BD). The online portion is consists of electronic sell-through (EST), Internet video on demand (iVOD) and subscription video on demand (SVOD).
Key to the surge in consumption of online video has been the rise of all-you-can-eat subscription services such as Netflix and Amazon Prime, which offer customers unlimited on-demand movies for a flat monthly or annual fee. The result is that subscriptions in 2011 accounted for 94 per cent of all paid online movie consumption in the United States, compared to just 1.3 per cent of units consumed that were bought on an ownership basis via electronic sell-through.
Although it is declining, physical video this year will still command more viewing time from Americans, who will spend an estimated 4.3 billion hours on DVDs and Blu-ray discs, compared to 3.2 billion hours for movies online.
And although online will account for the majority of transactions this year, it is set to attract a far lower share of revenue in 2012, at $1.7 billion, measured against $11.1 billion derived from physical formats. This is because consumers will pay an average of 51 cents for every movie consumed online, compared to $4.72 for physical video. The pattern will likely remain unchanged even by 2016, with online accounting for 17 percent of revenue, compared to 75 percent for physical video, and pay-TV video on demand taking the remaining 8 percent.
Netflix, while unquestionably the market leader, is not the only online SVOD game in town. Last year saw both Amazon and Hulu develop online streaming businesses at levels unheard of just a couple of years ago. For Amazon in particular, 2011 marked the transformation of Amazon Prime from a discounted shipping offer into a diverse entertainment proposition in its own right, allowing subscribers who paid the $79 per-year service access to a range of movies and TV shows.
The phenomenal growth of subscription movie consumption raises the prospect that as SVOD services become more widely adopted, they become an appreciable drain on the time that consumers would have used to watch movies in more lucrative ways, IHS believes. When this is combined with the possibility that consumers will always find something to watch, the still-nascent EST business could have its wings clipped before it can really take flight, even as consumption reaches previously unattainable highs.
“After more than 30 years of buying and renting movies on tapes and discs, this year marks the tipping point as U.S. consumers now are making a historic switch to Internet-based consumption, setting the stage for a worldwide migration of consumption from physical to online. We are looking at the beginning of the end of the age of movies on physical media like DVD and Blu-ray. But the transition is
likely to take time: almost nine years after the launch of the iTunes Store, CDs are still a vital part of the music business,” Cryan said.
Companies are releasing video content in DVD and VCD formats to ensure the highest quality standards, but also to significantly reduce costs. Moser Baer‘s fully licensed titles will be available at Rs 28 for an Indian film VCD and Rs 34 for an Indian film DVD – price points that we said before, will not just redefine the Rs 650 crore ($150 million) home entertainment business in the country, but also put it on the path to a four- to five-fold growth in the next three years. Of this, Moser Baer aims to have at least 50 per cent market share.
Other players in the market include the veteran Shemaroo. The firm recently introduced three new pricing categories for some products starting at Rs 66. Shemaroo VP Hiren Gada says that the last time DVD prices were reviewed was in 2004. He adds that the firm anticipated the competition in terms of prices and more players a few years back which is why it has sought to diversify itself.
More price cutting has come from Eros International which has slashed its entry price on DVDs, cutting it down from around Rs 150 to Rs 99 to keep in tune with the dynamics of the market.
Sony Pictures which has a home video unit is also adopting a wait and watch strategy. The firm feels that its price points are reasonable and with that price point it claims to compete successfully and at the same time make profits.
Madhouse, which rents out original and legal disks, is among the earliest players in the sector. It claims to be the first rental service Indian company to offer movie rental services accessible via a multi-channel model. This includes customer interactions through the web, SMS, phone and kiosks. Founded in December 2004, Madhouse is headquartered in Delhi. The rental service was launched in the tri-city region of Chandigarh, Panchkula and Mohali in May 2005.
Cinesprite.com, which was launched in 2006 with nearly 10,000 titles, is a DVD rental site that offers subscription plans ranging from one to 12 months with an activation fee of Rs 150 and Rs 250 depending upon the package the viewer chooses.
Movie Mart, a new comer in this space was launched this year. The website is also a subscription based DVD movie rental service providing its members access to a library of motion picture, television and other film entertainment. The member can choose from their subscription packages and also offers unlimited validity period for four DVDs at a time at a price of Rs 999. These prices are key in combating the falling prices of software.
Launched in October 2004, Clixflix plans to expand nationally. It offers a package of six DVDs a month at Rs 399 and unlimited DVDs at Rs 799. This is a Mumbai based rental agency.