Riding a tidal wave of growth for subscription video on demand (SVOD), Netflix Inc. in 2011 surged past Apple Inc. to become the largest U.S. online movie service in revenue terms, according to a new IHS Screen Digest Broadband Media Market Insight Report from information and analytics provider IHS (NYSE: IHS).
Netflix’s share of U.S. online movie revenue soared to 44 percent in 2011, up from less than 1 percent in 2010, as presented in the table below. The caused the company to rise to first place in 2011. Meanwhile, Apple’s share of total revenue declined to 32.3 percent last year, down from a 60.8 percent in 2010, despite enjoying strong revenue growth.
“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, in the press release. “The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.”
Online, on the money
In the United States, revenue from SVOD services—which give consumers access to movies in return for a regular, recurring fee—reached $454 million in 2011, growing by more than 10,000 percent from $4.3 million in 2010. As a result, SVOD became the largest segment of the U.S. online movie business in 2011, surpassing the other major parts of the market, transactional VOD and electronic sell-through. This change can be attributed to two factors: Netflix’s decision to start charging directly for online access, and the major growth in the number of people using online SVOD.
Meanwhile, transactional VOD expanded to $273 million in 2011, up 75 percent from $155 million during 2010. In contrast to SVOD, transactional VOD services like iTunes require consumers to pay a separate fee to rent each individual movie. EST grew by just 2.4 percent to reach $236 million.
“We are in the midst of a significant change in the way people pay to consume movies online,” Cryan said. “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.”
Netflix and Apple leading two sides of the market
What Netflix and iTunes have in common is that both services are focused on the hardware side of the business.
Netflix is available on a very wide range of connected devices, while iTunes can take advantage of Apple’s soaring device sales growth.
Nevertheless, comparisons between the two services have their limits. IHS research reveals that it’s not unusual for 70 to 80 percent of titles consumed through a transactional service to be new releases. However, SVOD services are overwhelmingly used for older titles.
“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.”
To understand the relative positioning of Netflix and Apple, it’s revealing to compare each service to its closest competitor.
While Netflix rules the SVOD market, its closest competitor—Hulu—is less than 10 percent of its size. Apple’s iTunes continues to dominate the transactional segment, accounting for 63.0 percent of revenue in this area, which was only down slightly from 64.6 percent in 2010. At the same time, the big growth story of 2011 was Walmart’s Vudu, which captured 8.2 percent of the growing transactional market, up from 2.8 percent last year. Most of this growth has been achieved by using a Netflix-like device strategy and has come at the expense of other providers, not Apple.
SVOD into the future
The stunning growth in SVOD revenue seen in 2011 is not likely to continue at the same rate in the future.
Netflix’s customer transition is now complete. And while its effect will be felt into 2012, which will be the first full year of paid streaming, Netflix’s U.S. digital customer base is likely to expand at a slower rate, in keeping with premium pay-TV channels. Consequently, IHS expects transactional VOD to experience stronger growth than SVOD after 2012 unless 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.
More info via IHS’ “Screen Digest Broadband Media” here.
Source: IHS iSuppli
Wow…is this the first article that MDN has reposted that doesn’t gush about Apple?
you must be new.
havent been around MDN long, have you?
I still won’t go back after that rate hike. I loved seeing that stock free-fall.
But how much of that Netflix business comes from iOS?
Also from TV.
At some point in the face of some unreasonable demands on a negotiating table, Apple may gently decide to allow torrent support as part of the most elderly proof interface. Floodgates that’ll ensue, will wash away all silly bickering.
Exactly.
Get that IHS report out quick.
Apple Inc. is about to disrupt the T.V. market.
Exactly. Remember all those articles in the past about “Apple should buy Netflix”, when all Apple will do is release the next new thing and quietly kill Netflix’s revenue, without buying them out.
You know something we don’t? Please elaborate. Continue. All the rest of us know is that there’s a lot of rumors and bullshit flying around. Nothing to make bold statements about though. Right? So you seem to know something. Pray tell us so we’ll know too. Again now, what is that “next new thing”?
Yes, I am afraid this will grow more.
Though I like the Apple strategy more, renting movies form Apple is nice for two reasons:
1) you can watch later. download and transfer your iDevice
2) you can stream the movie immediately
Yet Netflix at 8 dollars a month is a better bargain and is suitable quality for most and easy to work.
Apple should adopt or buy Netflix
or in ALL WAYS of APPLE – partnership with those who do things better.
Correct. Make alliances or fight.
Microsoft SilverLight is required in Netflix to provide streaming. How iPad streams Netflix is a wonderful question.
Yet, Microsoft is all over this video strategy and with several other video on demand services FLASH is dead and SIlverLight is winning the war on this front.
Not everything uses Silverlight, here is your answer.
“Netflix created an HTML5 streaming client to reach iPad users, as well as to simplify the process of developing and maintaining streaming clients for other non-desktop platforms.”
Read more: What Is the Netflix Streaming Format for the iPad? | eHow.com http://www.ehow.com/info_12199972_netflix-streaming-format-ipad.html#ixzz1wfHIVovH
I finally cancelled my longtime Netflix account just a couple months ago. I switched to their streaming only account during the pricing change fiasco last year. Steaming was good… for a while. But their rate of adding new content was MUCH slower than my rate of consumption, and eventually I literally ran out of stuff that I wanted to watch. Ultimately I determined that shutting down the service was a better use of my time than endlessly scrolling trying to find stuff worthy of viewing. I believe Netflix will flounder in the long run and suffer tremendously from their lack of new release media.
On the other hand, I still use my AppleTV for iTunes rentals, but have always had one big gripe about that business model: I want the rental to allow something like 30 hours to complete a rental instead of 24 hours. If I start watching at 9:00 pm on night one and get interrupted, then I’ll likely want to finish watching at about 9:00 pm on night two. Unfortunately iTunes doesn’t allow that, which is a major frustration when renting movies for my family to watch, particularly during weeknights.
Who has more revenue? Does it really matter? As with everything AAPL, it’s never been about market share.
Now how about a comparison of Apple profitability versus Netflix profitability?
Shit, even 30 hours is weak. We should get at least 48 hours after it starts. How Apple hasn’t gotten the studios to budge on that yet is beyond me.
I’ve had quite a few unfinished iTunes rentals evaporate on me. What a pain in the ass.
I PERSONALY love Netflix steaming option and at 8 bucks a month all you can stream c’mon that’s just a great deal anyone remember the video store where just 1 movie would cost you 5 bucks and it had to be back in a day or two … I think even if it were a free service some people would still complain just because they are never satisfied no matter what …. My two favorite things Netflix streaming on my iPad /iPhone /MacBook pro
I personally use Netflix download a lot. It is great for the content that is available but is limited to older content.
I used to get DVDs and downloads but realized I was not using the DVD service much so switched just to downloads.
So it is important to remember that a year ago I used to pay $25 a month and now I pay only $8. Their revenue from me had decreased 66%.
Whilst you can consume more content with the streaming model the revenue is lower. Netflix’s income must be taking a hit from the switch in revenue streams.
Apple on the other hand don’t make make money from downloads. They make it from selling the units. A single AppleTV generates the same revenue that a years subscription with netflix does.
We don’t know what Netflix margins are but they appear to be profitable overall. At least the PE ratio is sensible now so in some ways the hype is overall and Netflix is being viewed as a normal business.
I watch most of my TV on Cable because the per hour rate is cheaper. If I miss a chance to DVR it on Cable, I watch it on Hulu+ or HBO GO. If it is a TV series or movie I never watched, I look for it on NetFlix or put it on my DVD queue. If I want to see a new release immediately I rent it on iTunes or on Vudu if iTunes doesn’t have the 1080p version like Vudu does.
If it is something good enough to watch more than twice, I buy it on iTunes and view it on all my Apple gear. I simply do not have enough hard drive space to do it any other way and no interest in buy additional hard drives every year to maintain an archive.
Neither iTunes nor Netflix wow me.
This is kind of disingenuous, First Apple and Netflix have different business Models, then to also add to the mix Apple doesn’t have a monthy all you can eat plain, and third we have Netflix on Apples Devices including IPad, iPhone, Mac, Apple Tv….
So what Os the point of this article, 2 complete business Models that don’t compete with each other.
IHS Just used Apple to get more circulation, when Apple starts offering a 7.99$ monthly plain of all you can eat movies then we will have something to compare with, even the report says they are both different.
This.
Reblogged this on Sultanology.
I use both. $8 for all you can watch (but out of date) TV is better than having cable. Then I’m spending another $20-30 for every current show I like on iTunes. Works great, unless you watch a huge amount of mindless TV. Or if you watch sports. Then cable is a better option.
It dose bother me that the producer gets more from me when I download a show from iTunes, but they let the broadcast watchers see it a day before me. That will have to change.
I primarily use netflix because it is on every device I own.
Its on my laptop
Its built into my TV
Its on my 360
Its on my wii
its on my cell phone
its on my mac
Really Netflix has built a hell of an offering.
If I want to rent content, I can do that through my SAT provider.
Simple, apple needs to offer a similar service. I would pay and so would all of you.
revenue?
revenue is near meaningless in comparison of companies fi you don’t also list PROFITS (roughtly revenues minus expenses).
you might have a company with massive revenues like some car companies and yet be making almost no profits or even losing money.
the revenues of the phone companies like Nokia, Samsung etc is huge but the iPhone takes 80% of the world’s cell phone profits.
Netflix streaming library is typical of America.
“Look look look! All I can stream for $8 per month”.
All about quantity. Netflix streaming offers almost ZERO quality in terms of selection.
Pretty sad.
Apple does not need to buy or compete with Netflix, because Apple always gets it 30% share of their revenue in iOS-devices. IE Netfilx is doing the job for Apple.
Apple = Current (even unreleased to the public) movie, TV and other content.
Netflix Streaming = Old content (that I’ve already seen).
Easy choice IMHO.
I watch Netflix on my iPad every single day. $8 a month is an amazing price for unlimited movie and TV service. You could easily spend more than that for just two movies on iTunes. Yes, it’s Apple’s™ and oranges, but it no contest which service is more valuable to the consumer. I can watch season 2 of Parks & Recreation on Netflix for $8 (plus thousands of other shows and movies), or buy it on iTunes for $25. Tough call.