The writing is on the wall. Or perhaps it is just encoded in microscopic pits on a polycarbonate disc. But wherever you choose to read the signs, it is clear that physical distribution of entertainment media is on the way out. It has happened in the music industry, and we appear to be reaching a tipping point for movies as well.
New research by IHS Screen Digest Research predicts that in 2012, U.S. consumers will pay to watch more movies online than they will watch movies recorded on DVD and Blu-ray discs. Note that this research covers the money paid for legal downloads of this content. The forecast is that we will watch 3.4 billion streaming “views” this year, compared with 2.4 billion viewings of movies on discs. And their forecasts call for the online views to continue to grow rapidly while the disc views continue to decline.
IHS also makes an interesting point. Even though streaming views will dominate in 2012, the physical discs will continue to generate more revenue. The streaming movies are expected to earn just $1.7 billion. (Forgive me; did I really write “just $1.7 billion”? That is still more than the annual GDP of Belize! My apologies.) In contrast, the physical discs will likely generate $11.1 billion this year.
This may seem like a wildly lopsided comparison; who wouldn’t want 6.5 times more revenue? Keep in mind, however, that the marginal cost — the cost to produce the next copy of a product — is nearly zero for the streaming version. The physical version has a disc, packaging, handling, and shipping that go against that extra money. So as the market matures and the online movie services can further streamline their operations and reduce costs, it is possible that they will make more money even though consumers pay about $.50 per streaming video on average, compared with an average $4.72 for the physical discs.
From where I sit, I think the Netflix decision to move away from physical discs and toward streaming services was the right choice at the right time. These numbers appear to support that decision.