Internet to surpass DVD in movie consumption, not revenue
Consumers will watch more movies online than on DVDs in 2012 for the first time, but will spend far less doing so, according to a new report. — The number of movies rented or bought online from outlets like Netflix and iTunes …
Context & Ripple Effects
This crossover closes an arc that has been running for two years: Netflix declared its future was streaming back in 2010, US DVD sales were down 20% by mid-2011, yet consumers still professed loyalty to discs even as they drifted online. The report's twist is that volume and value are diverging — 2012 is the first year more movies are watched via outlets like Netflix and iTunes than on DVD, but at far lower total spend.
The timing matters for Netflix specifically: it entered 2012 rebuilding after its streaming base slipped from over 25 million to 20 million members, even as it reported 20 million members streaming over two billion hours in Q4 2011 and signed [[its first multi-year Weinstein Company exclusive]]. The report validates the strategic pivot while underlining the monetization problem attached to it.
First-order effects
- Studios and retailers like iTunes now face a consumption mix where the highest-volume channel (subscription streaming) generates the least revenue per title, pressuring them to defend premium digital purchase pricing against flat-fee competition.
- Netflix gains proof-of-concept for its streaming-first strategy just as it works to rebuild its subscriber base, with exclusive content deals like the Weinstein slate becoming its main lever for differentiation.
Second-order effects
- The gap between viewing share and revenue share pushes studios toward tools that make premium web video viable: Google, Microsoft, and Netflix have already co-authored a proposal for copy protection in HTML video, which would let studios sell high-value content through browsers without plug-in dependencies.
- Redbox-style kiosk economics, which the corpus flagged in 2009 as an industry threat, get squeezed from both sides — cheap rentals undercut by subscriptions above them and free/flat-rate streaming below.
Third-order effects
- If per-title spending keeps falling as volume migrates online, home entertainment revenue structurally decouples from consumption — shifting industry power toward whoever controls the subscription relationship and the recommendation layer rather than the disc supply chain.
- Browser-native copy protection, if adopted, would complete the digital library migration: physical media's last remaining advantages (guaranteed quality, ownership, offline playback) become software features rather than reasons to own plastic.
The trend: Home movie consumption is crossing from disc ownership to subscription streaming, with the format shift arriving faster than the revenue replacement.