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Streaming Poised to Overtake DVD and Blu-ray Rentals

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Streaming movies and TV shows are poised to become the dominant form of video rentals in the United States. In fact, based on trends observed during 4Q 2011, Americans will pay to watch 3.4 billion movies online in 2012.  This will be 1.04 billion more compared to DVD/Blu-ray disc rentals combined. Moreover, the growth in online consumption will jump 135 percent in 2012, compared to the year before. (In 2011, streaming video rentals increased by 74 percent, compared to 2010.)

The only qualifier: Since online viewers tend to “snack”—watching sections of videos, rather than staying until the end for each one—the time spent watching legal online movies is still just behind physical media.

This startling news comes from IHS Screen Digest, a regular report compiled by analysts who cover the film, television, broadband media, mobile media, cinema, home entertainment, gaming, and advertising sectors. The specific report is called “Online Movies: The Future, Today,”  written by Dan Cryan, IHS Screen Digest’s Senior Director of Digital Media.

Is this the time that OTT rentals will overtake physical rentals? “In terms of viewing [specific movies], online is already ahead," Cryan says. Meanwhile, even with snacking, the hours viewers spend watching online movies is expected to surpass hours watching physical media “within the next two years”.

According to Cryan’s research, the surge in OTT rentals is being driven by "all you can eat" subscription services such as Netflix, Hulu, and Amazon Prime. In 2011, this model accounted for 94 percent of all U.S. paid online movie consumption. In contrast, only 1.3 of all video purchased was done on an ownership basis; a stunning move away from the trend of DVD ownership that seemed to be the norm in the first decade of this century.

Driving this trend is a mix of price and convenience. On average, it cost $0.51 to watch a movie online in 2011; compared to an average price of $4.72 for a physical disc. Meanwhile, the availability of online movie libraries through Netflix and Amazon Prime makes it incredibly easy for subscribers to "binge" on content, without ever leaving the comfort of their couch or computer desk chair. Finally, it helps that streaming media can now be viewed on a wide range of devices including PCs, smartphones, tablets, and internet-connected TVs and set-top boxes. Collectively, these three factors have given OTT video rental the edge over its physical media competitors.

To illustrate the progress of streaming video on demand (SVOD) rentals, Cryan’s report takes a close look at market leader Netflix. He says that Netflix expected to serve 1 billion hours of video during 4Q2011; the total turned out to be double that.

“This works out in the region of 27 hours per subscriber; 20.2 million of which are in the U.S.,” Cryan wrote in his report. He then added, “While it is unquestionably the market leader, Netflix is not the only SVOD game in town. 2011 saw both Amazon and Hulu develop an online streaming business at levels that were unheard of a couple of years ago.”

Now OTT video rentals are not the only reason that major chains such as Blockbuster and, in Canada, Rogers Video, have folded. “Redbox, with its vending machines renting DVDs at cut-rate prices, has also cut into the physical market’s margins,” said Cryan. “But the result is that the days of national video rental stores are over. Small regional, local, and specialty rental stores still exist, but the Age of Blockbuster has truly passed.”

For their part, the major OTT rental firms are tight-lipped about their success. Streaming Media approached all of the majors for interviews. The only one to reply was Netflix, and the most that company’s director of corporate communications Joris Evers would comment on was the recent closing of Rogers Video, the last remaining major Canadian video rental chain.

Asked if Netflix was benefitting from the shifting Canadian market, Evers replied that, “We're very pleased with our success in Canada and we continue to grow our Canadian membership ... The streaming space is still relatively young in Canada and elsewhere and it is a market that is big enough for multiple players.”

Tight lips aside, Netflix, Amazon Prime, and Hulu have much to be happy about when it comes to online video rentals. Truly, the Age of the Physical Rental is about to be supplanted by the Age of the Video Stream. Ten years ago, such a notion would have seemed absurd, if not downright impossible.

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