Study Predicts Revenue Growth for Digital Movie Downloads

LONDON, September 4: A new report from Screen Digest predicts that the online movie distribution market
will be worth $1.3 billion in the U.S. and Western Europe by 2011.

According to Online Movie Strategies: Competitive Review
and Market Outlook‚ the projected $1.3
billion in revenues in 2010 will include $720 million from the U.S. and $572
million from Western Europe. The majority of the revenue in 2011 will be taken
by the studios and content owners, leaving service and solutions providers to
scramble for the remaining share.

The report also reveals that the overall winners in this
market will not only be the studios who own the content, but major device
manufacturers such as Microsoft, Apple and Sony. For some hardware
manufacturers, selling digital movies will also be used as a marketing tool to
sell devices. The Hollywood studios are also able to cash in and command high
margins. Screen Digest’s analysis
reveals that the studio wholesale price on movie downloads to service providers
ranges from 70 percent to 105 percent of the consumer price on the latest film
releases. As a result, for service providers, movie downloads will become a
low-margin and potentially loss-making endeavor, and only those service
providers who have a strong hardware proposition and are able to absorb the
cost, such as Apple, Microsoft or Sony, are likely to succeed.

The online digital movies segment will constitute 3 percent
of all movie home entertainment revenues in the U.S. and Western Europe by
2011. This may be smaller than some observers were expecting, but is still a
significant market and will bring much needed incremental revenue to the movie
business as DVD growth falls away. The report also compares the different
strategies and tactics employed by the studios for exploiting digital movie
content. Unlike the introduction of the DVD, where the studios agreed on a
single format and approximate business model, digital distribution is being
handled very differently. Every studio has its own view and approach, resulting
in the development of a fragmented market that may hinder the future
development of digital. For example, some studios are likely to adopt a “day
and date” strategy for film release, making content available across all
platforms on the same day, from the physical DVD to online downloads. Others
will continue with different release dates depending on the delivery medium.

Arash Amel, the senior analyst at Screen Digest and author of the report, commented: “We have
re-evaluated our 2006 forecasts of the digital movie market value in response
to consumer reaction to existing services. It is becoming increasingly apparent
that people want to watch films they’ve downloaded on their large screen TVs
and home entertainment systems. To do that, they need a new device, such as an
Apple TV, an Xbox, a PS3 or a plain old media extender, which can link their
broadband connection to the TV set. At present, there simply isn’t adequate
penetration of these devices, and the idea that people will en masse watch a
two or three-hour movie on the PC just isn’t realistic. It will take time to
reach a wider market penetration with these new devices, and we believe that
this will start to become more mainstream beyond 2011. How the studios react is
crucial. It’s a delicate balancing act between maintaining their relationships
with their highly important DVD customer base—the powerful retailers like
Walmart and Tesco—whilst meeting growing consumer demand for immediate
online downloads.”