Netflix online movie streaming revenue explodes, slices Apple share in half
Incredible gains in subscription-based online video-on-demand allowed Netflix to become the number one U.S. online movie service by revenue for 2011 after taking a deep cut into Apple's share of the market.
According to statistics released by research firm IHS, the company known for its red DVD-carrying envelopes grew its share of market revenue from less than one percent in 2010 to over 40 percent in 2011, enough to overtake former leader Apple and its iTunes service. It was reported in March 2011 that Apple only accounted for 4 percent of the U.S. digital video market, but lead in terms of video sales.
Revenue from subscription-based video-on-demand (SVOD) jumped to $454 million in 2011, representing an astounding 10,000 percent change from 2010's $4.3 million. SVOD subsequently became the most valuable sector of the U.S. online movie market, grossly outpacing the 75 percent revenue growth seen by transaction-based services like iTunes.
?We are in the midst of a significant change in the way people pay to consume movies online,? said Dan Cryan, research director for digital media at IHS. ?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.?
IHS Screen Digest June 2012 showed Apple's piece of the pie shrink from 60.8 percent in 2010 to 32.3 percent in 2011, a precipitous drop from the overwhelming 71.5 percent share iTunes enjoyed in 2009. While the iPad maker saw slight declines in 2009 and 2010, the company was well ahead of its closest competition Microsoft, which held 16.7 percent of the market two years ago and Netflix barely factored into the equation.
Netflix's performance is largely based on a combination of the company's decision to directly charge for SVOD access and an overall consumer trend away from physical media services that allow customers an allotted number of DVD and Blu-Ray discs for a monthly fee. When Netflix flipped the switch on its subscription-based online streaming service reaction was minimal as it was included as part of the mail-order pacakge. Interest in SVOD increased, however, as new internet-connected TVs and set-top boxes debuted making it easier for customers to access content. Also playing a factor was the backlash from existing Netflix customers over an attempted spin-off of the company's mail service drove customers online.
?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,? Cryan said. ?The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.?
Interestingly, the surge in SVOD has caused the online video market to split. Subscription-based services usually concentrate on older titles and TV shows while transaction-based solutions see a majority of its revenue come from new releases. The discrepancy in content stems from studio agreements, demographic targeting and market parity.
?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," Cryan said.
Both Apple and Netflix are the top players in their respective arenas despite the iPad maker seeing a drop in transactional sales from 64.6 percent in 2010 to 60 percent in 2011. Netflix rules the SVOD roost as the market share held by its closest competitor Hulu is some ten times smaller.
The amazing growth exhibited by the subscription-based streaming segment isn't expected to continue, however, as the tumult of the online movie market has seemingly calmed. With consumers comfortable in their respective SVOD and pay-per-unit camps, the only disruption could be the entry of a new player or a revolutionary product.
According to statistics released by research firm IHS, the company known for its red DVD-carrying envelopes grew its share of market revenue from less than one percent in 2010 to over 40 percent in 2011, enough to overtake former leader Apple and its iTunes service. It was reported in March 2011 that Apple only accounted for 4 percent of the U.S. digital video market, but lead in terms of video sales.
Revenue from subscription-based video-on-demand (SVOD) jumped to $454 million in 2011, representing an astounding 10,000 percent change from 2010's $4.3 million. SVOD subsequently became the most valuable sector of the U.S. online movie market, grossly outpacing the 75 percent revenue growth seen by transaction-based services like iTunes.
?We are in the midst of a significant change in the way people pay to consume movies online,? said Dan Cryan, research director for digital media at IHS. ?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.?
IHS Screen Digest June 2012 showed Apple's piece of the pie shrink from 60.8 percent in 2010 to 32.3 percent in 2011, a precipitous drop from the overwhelming 71.5 percent share iTunes enjoyed in 2009. While the iPad maker saw slight declines in 2009 and 2010, the company was well ahead of its closest competition Microsoft, which held 16.7 percent of the market two years ago and Netflix barely factored into the equation.
Netflix's performance is largely based on a combination of the company's decision to directly charge for SVOD access and an overall consumer trend away from physical media services that allow customers an allotted number of DVD and Blu-Ray discs for a monthly fee. When Netflix flipped the switch on its subscription-based online streaming service reaction was minimal as it was included as part of the mail-order pacakge. Interest in SVOD increased, however, as new internet-connected TVs and set-top boxes debuted making it easier for customers to access content. Also playing a factor was the backlash from existing Netflix customers over an attempted spin-off of the company's mail service drove customers online.
?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,? Cryan said. ?The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.?
Interestingly, the surge in SVOD has caused the online video market to split. Subscription-based services usually concentrate on older titles and TV shows while transaction-based solutions see a majority of its revenue come from new releases. The discrepancy in content stems from studio agreements, demographic targeting and market parity.
?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," Cryan said.
Both Apple and Netflix are the top players in their respective arenas despite the iPad maker seeing a drop in transactional sales from 64.6 percent in 2010 to 60 percent in 2011. Netflix rules the SVOD roost as the market share held by its closest competitor Hulu is some ten times smaller.
The amazing growth exhibited by the subscription-based streaming segment isn't expected to continue, however, as the tumult of the online movie market has seemingly calmed. With consumers comfortable in their respective SVOD and pay-per-unit camps, the only disruption could be the entry of a new player or a revolutionary product.
Comments
Yesterday's data.
Finally threw in the towel on my subscription, since I am sick of the constant buffering, lousy quality, and lousy choice. I know a couple of others who've done the same.
I think 2012 is going to turn out very different for Netflix.
What device(s) were you using Netflix?
edit: Now just noticing my first randomly placed question marks in the new AI forum.
Based on our experience of over two years of flawless HD from Netflix your problem is not Netflix, it's else where. We have FiOS 25/25, Apple AE .11n and ATV 3. The same was true with ATV mk 2 BTW. A year ago we cancelled our Verizon TV account, that's how pleased we are with Netflix (it's a plus they don't carry Fox News lol)
Funny, I wouldn't have guessed that Apple was #1 in this until recently. And Netflix model makes a lot more sense than Apple's (all you can eat "rentals" for a low monthly price), but I doubt anyone at Apple is losing sleep over being "beat" by Netflix. As others have said Netflix was one of the reasons I bought an Apple TV, so it's a win-win.
Quote:
Originally Posted by anantksundaram
Yesterday's data.
Finally threw in the towel on my subscription, since I am sick of the constant buffering, lousy quality, and lousy choice. I know a couple of others who've done the same.
I think 2012 is going to turn out very different for Netflix.
May I ask the source of your television subscriptions? Over-the-Air? "Premium Television" subscription (cable or satellite)? I really want to cut the cord but I am struggling for a good solution.
Quote:
Originally Posted by digitalclips
Using FiOS 25 / 25 we use Netflix via an Apple TV and Apple Airport Extreme to watch HD TV on a large screen every night flawlessly. To all those that moan about problems I can assure them it isn't Netflix, rather it's their ISP, their hardware or connection speed.
Agreed. I have AT&T with 18 mbps and have had few issues. Movies and Television are ready to "watch instantly" on my AppleTV (3rd generation). Very, very few issues with a practical and reasonable user interface.
Apple may have a breakaway year in 2012 again though. I had never, ever purchased a movie or television show on any media (Betamax, VHS, Laserdisc, DVD, Blu-Ray, HD DVD) until Apple iCloud initiated free, unlimited perpetual storage of purchased media (including movies). I actively search for the weekly bargains ($9.99 for HD) on AppleTV to build a small library of movies now.
Quote:
Originally Posted by malax
Funny, I wouldn't have guessed that Apple was #1 in this until recently. And Netflix model makes a lot more sense than Apple's (all you can eat "rentals" for a low monthly price), but I doubt anyone at Apple is losing sleep over being "beat" by Netflix. As others have said Netflix was one of the reasons I bought an Apple TV, so it's a win-win.
Apple iTunes is a juggernaut that media fears (with the exception of the book publishing industry which fears and hates Amazon). Apple iTunes is a major reason for the runaway success of iOS. Apps, Books, Movies, Music, Podcasts, Ringtones, TV Shows with device synchronization without peer is the reason you see so many Apple haters railing against iTunes. Well, that... as well as attempting to run an application that may be managing terabytes of data on an underpowered POS computer they purchased from the lowest bidder.
I freely admit that some components of Apple iTunes are done better by others but the entire ecosystem in one package is unsurpassed.
If Netflix is doing so well, why is the company's share price cratering? It would seem to be a bad financial model. Again, market share seems to have such high importance, but at what cost. I have to admit that Apple must have been asleep at the wheel to just let Netflix gain so much market share in such a short time.
Quote:
Originally Posted by SolipsismX
What device(s) were you using Netflix?
Fairly straightforward stuff: Apple 2TB Time Capsule, connected via ethernet cable, the latest AppleTV.
The quality of my cable connection is excellent. (I had Netflix repeatedly in suspension during major portions of 2011. I wanted to give them a chance. But it got to be ridiculous).
Quote:
Originally Posted by MacBook Pro
May I ask the source of your television subscriptions? Over-the-Air? "Premium Television" subscription (cable or satellite)? I really want to cut the cord but I am struggling for a good solution.
"Premium" cable subscription.
SVOD isn't really the same as iTunes offerings so it's probably erroneous to even compare them. Plus we have little information about how they got their data. Apple has always been very secretive about their sales info so something makes me doubt that this company has detailed data to make their comparisons .
Quote:
Originally Posted by digitalclips
Using FiOS 25 / 25 we use Netflix via an Apple TV and Apple Airport Extreme to watch HD TV on a large screen every night flawlessly. To all those that moan about problems I can assure them it isn't Netflix, rather it's their ISP, their hardware or connection speed.
Good for you that you think you can "assure" me! You can keep that to yourself.
I get 12 mbps on my cable connection (which is pretty darn good), and Netflix has been crap since Day 1. For my hardware, see above. ISP?! What could be wrong with an ISP that's specific to Netflix?
So, you're one data point, and I am another. So what?
One more thing: "1080p" on Netflix is positively a joke.
Quote:
Originally Posted by anantksundaram
Fairly straightforward stuff: Apple 2TB Time Capsule, connected via ethernet cable, the latest AppleTV.
The quality of my cable connection is excellent. (I had Netflix repeatedly in suspension during major portions of 2011. I wanted to give them a chance. But it got to be ridiculous).
Why the 2TB Time Capsule connected to ??? Are you just purchasing directly from Apple then or are you using AirPlay from your Mac to the AppleTV?
Quote:
Originally Posted by charlituna
SVOD isn't really the same as iTunes offerings so it's probably erroneous to even compare them. Plus we have little information about how they got their data. Apple has always been very secretive about their sales info so something makes me doubt that this company has detailed data to make their comparisons .
The data is good. I have posted links that demonstrated Apple's dominance in digital movie downloads many times in other threads.
Doesn't matter though, if you only have one or two choices for internet, and its not up to FIOS quality. Not everyone has a stellar broadband connection. Whats worse is, mark my word. Your isp will soon start capping broadband usage, and give you a choice of different tiers, if you want to stream. All of a sudden, streaming videos will not be such a great deal. This is coming soon, watch it coming over the hill.
Quote:
Originally Posted by Constable Odo
If Netflix is doing so well, why is the company's share price cratering? It would seem to be a bad financial model. Again, market share seems to have such high importance, but at what cost. I have to admit that Apple must have been asleep at the wheel to just let Netflix gain so much market share in such a short time.
Because streaming is not profitable for them at present. Costs are too high still. The profitable portion of their business is their DVD delivery business, and they are hinting at getting away from that. Go figure. NO one can replicate their infrastructure to deliver high quality BluRay via mail or any other way, and they are abandoning it. <shaking my head here>
Quote:
Originally Posted by anantksundaram
Good for you that you think you can "assure" me! You can keep that to yourself.
I get 12 mbps on my cable connection (which is pretty darn good), and Netflix has been crap since Day 1. For my hardware, see above. ISP?! What could be wrong with an ISP that's specific to Netflix?
So, you're one data point, and I am another. So what?
One more thing: "1080p" on Netflix is positively a joke.
Your ISP could throttle your data from Netflix. I wouldn't discount any ISP from doing so. Frankly, I have AT&T iPhone 4S (2), AT&T U-verse, plain old telephone service, and Internet with typically one PPV per month (UFC). AT&T should be sending Hookers and Coke to my house every month for what I pay... I still wouldn't put throttling my service past those %&*#@$.
1080p on AppleTV (3rd generation) does suck. I suspect a significant portion of the Netflix catalog is not 1080p or Netflix may use lossy compression to improve streaming.
Duh! Even when the Apple Television comes out Netflix will be number one. They have a niche in the market. Did I spell that right? Niche.
Well if Netflix never fails for me and is does for you I would suspect the problem is your end. Then again perhaps I have a magical set up. /smile