• Netflix Supplants Apple as the Online Movie Money Making King




    Netflix may have tripped over their own feet, and stumbled a bit with their subscription fee restructuring (not to mention Qwikster) but, the company still emerged as the online movie money making giant.

    Netflix’s share of market revenue grew tenfold from 2010 to 2011 according to statistics released by research firm IHS. Netflix's percentage of the online movie market share jumped from 0.5% in 2010 to 44% in 2011 as well. Apple on the other hand saw a steady decline in its percentage of the online movie market share peaking in 2009 at 71.5%, and falling drastically from 60.8% in 2010 to 32.3% in 2011.

    While Apple’s decline and Netflix’s success can partially be attributed to more players entering the online movie market, the larger trend affecting both companies involves how consumers are digesting their movies. Subscription-based-video-on-demand revenues jumped from a non-existent $4.3 million in revenues 2010 to $454 million in 2011, easily becoming the most valuable portion of the U.S. online movie market. SVOD saw a 10,000% increase in revenue compared to 75% growth experienced by traditional transaction services like iTunes.

    “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 U.S. 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.” — Dan Cryan, IHS research director for digital media.
    Over the last year set-top boxes, internet ready TVs, and video game consoles have put the SVOD model in millions of households, and the expectations and consumption habits of consumers have changed. However, the market is experiencing a Red Sea like division at the behest of the studios. SVOD companies like Netflix must fight tooth and nail for their licensing agreements and specialize in relatively old material, while traditional transaction services like iTunes maintain the advantage in terms of new releases. Studios want to maintain some semblance of their traditional media based revenue models, and have all, but eliminated new releases from SVOD services.

    The division won’t last forever though. As consumers’ viewing habits continue to change the studios will be forced to adopt a new business model. Apple’s entrance into the HDTV market might just be the catalyst needed to remove the movie studios and television networks from their entrenched business foxholes.

    Or Apple could side with the studios and the release of the Apple HDTV could be utterly disappointing.

    Source: IHS [via Apple Insider]
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