Physical Home Entertainment Market Eroded by Netflix

LONDON: A new report from IHS points to a correlation between Netflix’s launch in a market and a reduction in consumer spending on buying and renting movies and TV series on disc.

The IHS Technology report is titled Did Netflix Kill the Physical Video Market? It says that spending on buying and renting movies and TV series on disc was falling by an average of 1.2 percent a year before Netflix launched its streaming service in the U.S. in 2007. Since 2010, spending has dropped by an average of 10.3 percent a year.

Consumers spent $20.9 billion buying and renting movies and TV content in the U.S. in 2006, the report observes. By last year, total spending on this segment was down by 17 percent to $17.3 billion.

“The data shows that Netflix’s entry into a market has a noticeable effect on consumer behavior, even in countries where they already had access to other streaming video services,” said Helen Davis Jayalath, senior researcher at IHS Technology. “Movies and TV shows are not only the biggest draw for Netflix subscribers, they are also the backbone of the home entertainment industry, generating 80 percent to 90 percent of the business in most countries.”

In the U.K., sales of DVD movies have more than halved since 2008, when the first SVOD services launched. The biggest decline was in 2012, when sales fell by 14.5 percent. That was the year Netflix launched in the U.K. Since 2012, sales of box sets and other TV shows on DVD have dropped by more than 14 percent a year. TV show rentals are down by almost 75 percent.

“Last year, [British consumers] spent £1.8 billion on buying and renting movies and TV content, more than 26 percent of which was generated by SVOD services,” Davis Jayalath said. Nonetheless, total spending is still £82 million a year less than it was before Netflix launched and down by £474 million since the launch of LoveFilm.

IHS is expecting similar pressure on the physical video market in Australia. On Japan, Davis Jayalath said, “The key to success is not U.S. movies and TV shows, but domestic content. If Netflix can invest enough in original Japanese anime content to tempt consumers away from DVD rental it will have achieved something that has so far eluded not only the Hollywood studios but also a dozen other SVOD operators.”