U.S. online movies to top physical media in 2012

According to market researcher IHS, legally downloaded movies will outperform disc-based movies for the first time ever in 2012. The group believes online movies transactions will more than double this year, hitting 3.4 billion. Meanwhile, purchases of Blu-ray and DVD movies will fall for the second straight year to 2.4 billion — the beginning of a slow descent expected to last the next five years.

U.S. online movies to top physical media in 2012

IHS counted both sales and rentals of Blu-ray, DVD and VHS(!) movies in its physical media tally, while digital purchases, Internet VOD and subscription-based streaming services counted toward the online figure.

Netflix and other subscription services grabbed the bulk of the non-physical movie viewing segment, noted Dan Cryan, senior principal analyst, broadband and digital media at IHS. Those companies garnered 94 percent of all online viewing in the U.S. Around 4.7 percent flocked to iVOD, whereas electronic sell-through came in third with a meager 1.3 percent. Clearly, UltraViolet faces an uphill battle to turn online movie watchers into online movie buyers.

“The year 2012 will be the final nail to the coffin on the old idea that consumers won’t accept premium content distribution over the Internet,” said Cryan. “In fact, the growth in online consumption is part of a broader trend that has seen the total number of movies consumed from services that are traditionally considered ‘home entertainment’ grow by 40 percent between 2007 and 2011, even as the number of movies viewed on physical formats has declined.”

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Two bright spots do remain for the traditional formats, added the analyst. Consumers will spend some 4.3 billion hours watching Blu-ray and DVD movies in 2012, but only 3.2 billion hours with online movies. Additionally, total revenue from online-based movies will represent just a fraction of what physical formats make: $1.7 billion to $11.1 billion, respectively.

Cryan believes the writing is on the wall for physical media, but admitted it won’t necessarily be an overnight process, citing how CDs are still a big part of the music business.

“After more than 30 years of buying and renting movies on tapes and discs, this year marks the tipping point as U.S. consumers now are making a historic switch to Internet-based consumption, setting the stage for a worldwide migration of consumption from physical to online,” said Cryan. “We are looking at the beginning of the end of the age of movies on physical media like DVD and Blu-ray.”

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