End Of An Age: Netflix, Hulu, Amazon Will Beat Physical Video Viewing In 2012

by Steve Smith, Mar 23, 2012, 8:43 AM

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The video everywhere and anywhere phenomenon is finally going to push digital viewing past disc-based experiences this year. According to tracking for IHS Screen Digest, online movie watching will surpass 3.4 billion views this year -- about 1 billion units of viewing more than the 2.4 billion views (or transactions). This represents monstrous growth in digital viewing, since only last year the viewing of physical video accounted for 2.6 billion views, compared to digital video at 1.4 billion. Internet viewing of video measured in movie views was up 135%, IHS says.

IHS Senior Principal Analyst, Broadband & Digital Media Dan Cryan said in the report that the metrics mark a milestone in media history. “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.” Cryan reminds us that even nine years after the arrival of the iTunes music store, CD sales continue -- and so the transition will be prolonged. Nevertheless, he says, "we are looking at the beginning of the end of the age of movies on physical media like DVD and Blu-ray.”

The physical video market is comprised of sales and rentals of VHS, DVD and Blu-ray discs, while the digital segment includes electronic sell-through of video, Internet-based video on demand and subscription-based video on demand. It is this last category, not surprisingly, that is crushing the market for discs. IHS subscription video services accounted for 94% of all paid online movie consumption in the U.S. Only about 1.3% of video units consumed had been individually purchased.

This itself is an interesting wrinkle in the market, since studios and even core video sellers like Apple seemed to be hoping for cloud-based lockers of videos. In this model, the habit of amassing video collections could be transported to virtual space. For now that model does not seem to have taken hold with video lovers, although a cloud-based approach would give them access to their content to see and share across devices.

Instead, the critical cross-platform services like Netflix, Amazon and Hulu Plus have seen enormous gains as they all migrate to portable devices. Still, disc-based viewing will continue to beat out Internet-based video viewing in terms of total time spent. Traditional media will see 4.3 billion hours, while online viewing will get 3.2 billion hours. And as in all other migrations from offline to online media, the total revenue of Internet-based video viewing will be a fraction of discs --  $1.7 billion compared to $11.1 billion. The disparity suggests to IHS analysts that Internet access to video via subscription might lead to online viewing sucking mindshare from other video viewing platforms without necessarily adding to revenue.

With consumers always having something to watch via Netflix or Amazon, their need to seek out more lucrative sources like discs -- or even electronic sell-through -- diminishes.     

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