A recent study conducted by consultancy group IHS has suggested that by the end of 2012 American film lovers will have paid for 3.4 billion films online, a massive increase on the 2011 total of roughly 1.4 billion. The increase has been driven principally by the surge in subscriptions to Netflix’s streaming site as the company transitions from a DVD-by-post outfit to the current library of rentable streaming content.
Netflix now boasts 24 million subscribers, which, combined with Amazon Prime’s 10 million members, accounts for around 94% of all purchased film online. The only other contender is Hulu, with just over 1.5 million customers on its books.
Implications for DVD Sales
The study features the optimistic view that DVDs and Blu-ray will continue to play a vital role in the market, citing the continued survival of the CD market in the music industry nine years after the arrival of iTunes. Perhaps, though, that touches on an uncomfortable truth: consumers who continue to purchase both disc-based music and film tend to be older and non-web-savvy, while an increasing portion of the market is much happier paying beneath theatre prices and watching at home. Even a relatively middling flat-screen television can give high quality video, and since the advent of 3D and the proliferation of multiplex cinemas, there has been little to stand in the way of an increasingly spectacular but increasingly expensive theatre experience. But that trend is changing.
Streaming online provides a more attractive deal for consumers, costing on average little more than 50 cents per film, compared to almost $5 to watch the same in cinemas or on disc. Distributors might find this approach of providing a cheap alternative service much more profitable in the long term, but for now physical sales still account for almost ten times the revenue of its online competitor.
Any discussion of distributing film online should incorporate the ever-present issue of piracy. As statistics gathered by TorrentFreak.com suggest, piracy might be slightly reduced since last year (in 2010 Avatar was pirated an incredible 16 million times, compared with 2011’s chart topper Fast Five on 9.25 million), but it is still rampant. But how much does it affect revenue? Of last year’s top ten, only Sucker Punch ($89m) and 127 Hours ($60m) took under $100m at the box office, which for the latter represented an impressive return on investment from its $18m budget, while Sucker Punch was indifferently received by critics and fans alike. But the true impact is difficult to ascertain: how many of these viewers had already seen it in theatres, how many couldn’t afford to, and how many simply didn’t want to? The nature of the phenomenon makes it difficult to get to the heart of the issue, but the huge uptake in Netflix subscriptions suggests that given a reasonable deal, consumers are happy to pay what they see as a fair price.
As the bellyaching music industry found, people have not stopped wanting to listen to music, and people will not stop watching film. But how they watch has changed. With better access to fibre optic broadband and high-quality television, the appeal of expensive and fallible discs is fading. Services like Netflix and LoveFilm in the UK are proving that choice is key to not only keeping customers interested in the newest releases, but also in combatting piracy by providing a reasonably-priced and legal alternative.