IHS: NETFLIX SURPASSES APPLE IN 2011 ONLINE MOVIE BUSINESS

(The following is a reformatted version of a press release
issued by IHS Media Relations and received via electronic mail.
The release was confirmed by the sender.) 
Netflix Surpasses Apple to Take Lead in U.S. Online Movie
Business in 2011 
El Segundo, Calif., June 1, 2012--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. “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. 
For more information, please contact: 
Jonathan Cassell
Senior Manager, Editorial
jonathan.cassell@ihs.comDirect: +1 408 654 1714
Mobile: +1 408 921 3754
Or
Debra Jaramilla
Manager, Global Product Marketing
debra.jaramilla@ihs.comDirect: +1 310 524 4047
Or
IHS Media Relations
press@ihs.com+1 303 305 8021 
(bjh) NY 
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