IHS: Netflix Passes Apple to Take Lead in Online Movie Business

EL SEGUNDO: Research firm IHS says that Netflix is now the largest online movie service in the U.S. in terms of revenues, taking a 44-percent share of the market in 2011, as compared with Apple’s 32.3 percent.

The IHS Screen Digest Broadband Media Market Insight Report indicates that Netflix’s share of online movie revenues was just 1 percent in 2010, whereas Apple’s was 60.8 percent.

“2011 marked a sea change in the online movies business that saw the balance of consumer spending shift from a DVD-like transactional model to more TV-like subscription approach,” said Dan Cryan, research director for digital media at IHS. “The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.”

SVOD became the largest segment of the U.S. online movie business in 2011, IHS said, delivering $454 million in revenues as compared with just $4.3 million in 2010, surpassing transactional VOD ($273 million)—and electronic sell-through ($236 million).

“We are in the midst of a significant change in the way people pay to consume movies online,” Cryan continued. “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.”

The IHS research goes on to note that Netflix and Apple are leading two different sides of the online movie market: Netflix tops the SVOD segment, well ahead of its nearest competitor, Hulu. Apple, meanwhile, is the leading transactional VOD service. “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 SVOD growth seen in 2011 is likely to slow, IHS says, while transactional VOD gains will pick up in 2012 unless, the report notes, "there is a significant market entry, such as a standalone HBO streaming subscription or a full-fledged pay-TV subscription service delivered over the open Internet."