IHS Screen Digest recently released their analysis of the 2011 US online film industry with some major changes from 2010. Other than the industry doubling to reach $992 million, it showed a major shift in consumption from transactional models to subscription models. Netflix alone jumped from a 0.5% market share to a 44% market share and iTunes dropped from 60.8% to 32.3%. At initial glance this suggests the future of film is a Netflix market; however, hidden behind the numbers are some interesting facts that challenge that perspective.
Market Categorization — Netflix’s 8,800% growth over the last year is related to the suddenly forced shift of their subscriber base from DVD rental to streaming only in 2011. As a result, the growth rate is likely to slow down this year to a rate more in line with premium pay-TV channels. Also, it’s unclear whether TV shows available on home video are being categorized in the film industry category or if IHS excluded this base of content. From my personal experience, more people use Netflix to catch up on TV shows than watch movies, and this would skew the perspective as well.
All Platforms Aren’t Competitors — The collection of films on Netflix is not equal to the library on iTunes or other transactional models. Netflix curates a limited collection of library films, often the sort of films consumers may not want to pay to watch but love to watch for free. In general, people use iTunes for new releases and niche or indie films. Similar to how we’ve learned that music streaming on Spotify or YouTube does not cannibalize iTunes download sales, I’d argue that increased activity on Netflix does not mean people are spending less on iTunes. The platforms are used for two different purposes. iTunes does compete, however, with other transactional models like X-Box and VUDU because consumers generally align with one transactional platform.
Walmart’s Doing Better Than Amazon & Google — When you exclude Netflix from the report and focus only on transactional models, iTunes, X-Box and Sony each lost 3% market share while Walmart’s VUDU gained 5%. That’s more than all “Other” platforms grew in 2011 combined in terms of market share, Amazon and Google included.
Think Global — While it’s helpful to see the breakdown of the US market, the online marketplace is a global industry, far more global than the traditional home video market ever was. The Orchard supplies films to over 35 iTunes territories and growing, while Netflix is just now starting to reach a few countries outside of North America. But Netflix’s ability to reach viewers in these new territories will be challenging. iTunes has already established a popular brand globally thanks to their music business, and X-Box thanks to gaming, and there are local subscription competitors in each region. Many of The Orchard’s clients see 50% of their film’s revenue come from outside of the US, so it’s an important consideration.
No matter which way you slice the pie, the market is expected to double again in 2012 according to IHS. We see the dust starting to settle and The Orchard is well positioned to navigate the online film marketplace, already partnered with all the major outlets.