Shop Talk: How the Bread Gets Buttered

By David Mumpower

February 7, 2013

Behold the best selling Blu-Ray box set of 2012! I think it sold as many as 800 copies.

New at BOP:
Share & Save
Digg Button  
Print this column
Brick and mortar is a term used in the industry to describe stores that perform physical sales. Blockbuster was the greatest historical example of a brick and mortar movie dealer but…well, you know. We generally use the term now to describe places such as Best Buy and Wal-Mart.

Brick and mortar stores were the bread and butter of the movie industry in the early 2000s. Consider that in 2003, the industry grossed $41.2 billion from film revenue. $18.9 billion of that revenue, a full 46%, was accrued via video and DVD sales. Amazon and other online retailers were responsible for only a small percentage of that amount. In fact, Amazon’s total gross revenue in 2003 was “only” $5.3 billion, a staggering amount in and of itself but a far cry from the $61 billion the company earned in 2012. Internet sales were still in their infancy at that time.

Fast forward to today and the story has changed dramatically. Some of you may have noticed the disappearance of one of BOP’s oldest columns, How to Spend $20. The explanation for this is that we saw the writing on the wall about the importance of physical media sales. Since the ascension of Netflix as a streaming video service, the revenue splits in the movie industry are moving in the wrong direction for physical media.

Packaged media sales fell from $10.52 million in 2010 to $8.95 billion in 2011. 2012 was a similar decline as the market share for physical media fell from 64% in 2011 to 61% last year. And here is the moment where the worm turns. As physical media heads south in popularity, the streaming model ascends.

In 2011, the digital media market including sales and video on demand delivery services comprised 25% of the pie. In 2012, that number increased to 28%. One out of every six movie dollars earned in the home video phase in 2012 was a digital movie transaction. Stating the obvious, physical media is a dinosaur waiting for the comet to hit.

Roku went so far as to state in the middle of last year that Blu-ray only had four more years of existence as a viable platform. There is that much confidence that streaming media is the winning side. To wit, there are not final numbers yet but the belief is that a billion (!) more movies were watched via online services last year than were rented/purchased via physical media.

As the trend continues to escalate, the specific numbers are where the intrigue lies. Substantive growth for digital delivery first occurred in 2011. Revenue via online mediums spiked 51% from $2.26 billion in 2010 to $3.42 billion in 2011. Final numbers are not in for 2012 yet but the trend here is unmistakable. And all of this is great news for Apple.




Advertisement



Out of all the video on demand internet rental services discussed on BOP over the past couple of years, Apple is dominating the market share. 45% of all such transactions are purchased via iTunes. Its most storied competitor, Amazon, lags far behind with only 18%. Apple customers purchase two and a half rentals for every one by Amazon customers.

Meanwhile, the service most closely associated with Ultraviolet features, Vudu, is starting to make some headway. It finally reached the 15% mark in 2012 and appears headed toward second place among the competing services. Out of the top three services, Vudu is the only one that currently allows customers to view their Ultraviolet library in the cloud, and this competitive advantage is enticing a lot of new clients. Virtually tied with Vudu is Microsoft’s Zune with 14% of the market but its appeal has been diminishing lately. After these four companies, the rest of the internet video services are statistically irrelevant right now.

The above evaluation of the current marketplace leads to some obvious conclusions. The first is that the attempt to replace DVD with Blu-ray has failed completely. Annual sales of DVDs were as high as $18 billion; Blu-Ray must experience tremendous growth to reach $5 billion. As physical media erodes in popularity, the next turf war is much more wide open than Betamax vs. VHS or HD-DVD vs. Blu-ray.

There are several competing players, all of whom are looking up with envy at Apple’s lofty position. Two of my favorites, Amazon and Vudu, are heading in opposite directions. The former seems more focused on streaming than sales while the latter correctly tied their fate to that of Ultraviolet.

Finally, the movie industry as a whole continues to survive constantly changing revenue opportunities in the market place, somehow earning as much as a few years despite the decline of physical media. The question becomes how well the studios will survive the cataclysmic change of a sedentary Internet market in a few years. The previous ability to re-sell the same titles with each new format are about to vanish.

In my next discussion, I will focus more on the genius of the kiosk industry. I also will be doing another Ultraviolet column. A new option has recently become available that fundamentally alters the convenience of Disc to Digital conversions.


Continued:       1       2

     


 
 

Need to contact us? E-mail a Box Office Prophet.
Tuesday, March 19, 2024
© 2024 Box Office Prophets, a division of One Of Us, Inc.