Movie Downloads to Hit $1.3B in ’11; Fragmented Studio Strategies Hurt Market

September 4, 2007

This article is included in these additional categories:

Europe & Middle East | Media & Entertainment | Out-of-Home | Retail & E-Commerce | Television

A viable business will emerge in the US and Western Europe for movie downloading, but movie studios have adopted differing digital distribution strategies – and that is likely to hamper the market, confusing and fragmenting the consumer market, according to a report from Screen Digest.

The movie downloading market will be worth $1.3 billion in 2011 in the US and Western Europe combined, of which $720 million will be generated in the US and $572 million in Western Europe, Screen Digest predicts.

The majority of the revenue in 2011 will be taken by the Studios and content owners, at $530 million in the US and $405 million in Western Europe, leaving service and solutions providers to scramble for the remaining share, according to the study.

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The “Online Movie Strategies: Competitive Review and Market Outlook” report examines how individual Hollywood Studios are adapting their businesses to online movie distribution and  provides analysis and forecasts of the movie distribution business in the US and Western Europe.

Some of the key findings of the report:

  • Transactional business models will dominate, with download-to-own services generating the majority of revenues in 2011.
  • As with digital music, online movie services need to be closely integrated with a device to be successful.
  • A key obstacle to overcome is the delivery of online movie content to the television.
  • As service providers seek to attract Studio content to their platforms, Studio margins have risen.
  • Each Studio is adopting a unique digital strategy by supporting different platforms and release windows, resulting in a fragmented market.

The online digital movies segment will constitute 3% of all movie home entertainment revenues in the US and Western Europe by 2011, Screen Digest predicts. That may be small, but it is a significant market and will bring much needed incremental revenue to the movie business as DVD growth falls away, according to the report.

Also, because some hardware manufacturers will sell digital movies as a marketing tool to sell devices, the Studios will be able to cash in and command high margins: Studio wholesale price on movie downloads to service providers ranges from 70% to 105% of consumer price on the latest new film releases; accordingly, only those service providers that have a strong hardware proposition and are able to absorb the cost – such as Apple, Microsoft and Sony – are likely to succeed, Screen Digest concludes.

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“It is becoming increasingly apparent that people want to watch films they’ve downloaded on their large screen TVs and home entertainment systems. To do that, they need a new device, such as an Apple TV, an Xbox, a PS3 or a plain old media extender, which can link their broadband connection to the TV set,” said Arash Amel, Screen Digest senior analyst and author of the report.

“At present, there simply isn’t adequate penetration of these devices – and the idea that people will en masse watch a two or three-hour movie on the PC just isn’t realistic. It will take time to reach a wider market penetration with these new devices, and we believe that this will start to become more main stream beyond 2011,” Amel said.

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Complicating the matter and hindering growth is the fact that unlike the introduction of the DVD, with the Studios agreeing on a single format and approximate business model, digital is being handled differently by each Studio.

For example, some Studios are likely to adopt a “day and date” strategy for film release, making content available across all platforms on the same day, from the physical DVD to online downloads. Others, however, will continue with different release dates, depending on the delivery medium.

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“How the Studios react is crucial. It’s a delicate balancing act between maintaining their relationships with their highly important DVD customer base – the powerful retailers like Walmart and Tesco – whilst meeting growing consumer demand for immediate online downloads,” Amel concluded.

About the study:  The report focuses on the online distribution of digital movies in Western Europe and the US, and contains detailed analysis of the strategies of the major Hollywood Studios. Data includes consumer spending on movie downloading and trade-level revenues generated by content owners. The report also details the penetration of technology, including broadband connectivity, portable video device data and in-home broadband-enabled entertainment device forecast. The report profiles and presents key details on eight Hollywood Studios, including the size of libraries prepared for digital distribution and benchmarking of service deals struck in the US and Western Europe.

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