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Summary:

Now there’s even more evidence that Hollywood studios need to embrace alternative business models before they cannibalize their existing business: In-Stat forecasts DVD sales are expected to decline by $4.6 billion over the next five years. Meanwhile, streaming revenues are expected to triple in that time.

hollywood sign

We’ve long held that Hollywood studios need to be forward-thinking, and to embrace new technologies and distribution outlets, even if they come at the expense of their existing business models. Well today there’s more evidence that Hollywood needs to get on-board with new distribution services like Netflix or Apple iTunes, or risk being left in the dust.

For years, DVD sales have been a cash cow, and studios have clung to their popularity to bolster sales and profits after film releases. But the gradual decline that the industry has seen over the last few years is set to accelerate over the next five years: According to research firm In-Stat, DVD sales will plummet by $4.6 billion over the that time, as consumers begin spending on streaming video services instead.

But there’s a glimmer of hope — In-Stat expects that over the same time period, sales of TV episodes streamed over the Internet will nearly triple, from $2.3 billion to $6.3 billion by the end of 2014. Not just that, but subscription streaming services — like Netflix or Hulu Plus — will make up the bulk of that growth, contributing $3.5 billion in revenues by 2014.

While growth in streaming revenue won’t quite make up for the drop in physical media sales, it’s clear that streaming is the future. And rather than hanging on to what is essentially a dying business — DVD sales and rentals — the studios would be better served widening their distribution through new services. This is a lesson that studios should take to heart, but one that they’ve been slow to move on.

Some companies are even setting up roadblocks to their content, betting that by making it harder for users to find it online or through alternative mechanisms, they’ll be more likely to purchase the DVD. That’s at the heart of agreements that Netflix and Redbox have with studios like Warner Bros. and Sony Pictures negotiating for a 28-day window under which its DVD titles won’t be available for rent from those providers.

The 28-day DVD window might actually be working, with some DVD sales showing an increase over comparable titles in previous years. But that slight increase is only delaying the inevitable, as user behavior changes and more content becomes easily available for streaming.

As more and more TVs and Blu-ray players are sold with broadband connections and online video services built in, consumers will have less of a reason to go to the local Walmart and buy a DVD. Instead, viewers now have a wide range of content available in their living room — they no longer have to even leave the couch to access it. If studios are too busy focusing on protecting the revenues they get from DVD, they might just miss the opportunity that’s available from streaming.

Photo of Hollywood sign courtesy of Flickr user Sörn.

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  1. It’s not hard to see why studios are clinging to old ideas, it’s been a big bonanza cash cow for years and they’re hooked to it like crack. The thought of having to do with less is probably unthinkable to them. Same reason the cable companies fight innovation. Follow the money!

  2. Mr. Lawler, you don’t understand the media business as well as you think you do. You jump to conclusions without logic or reason. You say the Hollywood studios are going to get “left in the dust,” by who I might ask? YouTube is no substitute for professional content coming out of the major studios. You clearly don’t understand that TV shows and movies cost a lot of money to create. Do I think the major distributors need to innovate and embrace new technology. Absolutely! But if you think that studies/programmers/distributors are going turn their back on revenue, you are sadly mistaken.

    1. I understand these things take money to create, but what I’m saying is there is revenue to be had, just not under the same business model they’ve currently been following. And those that innovate quickly and embrace new distribution models are more likely to succeed. The studios that try to wring every last buck out of the DVD marketplace without looking to the future are the ones that will be left in the dust.

  3. Ryan, the scenario that you describe is actually a bonus for all the professional Indie video content producers and distributors. While the Hollywood studios defer the shift to OTT streaming, it enables all the smaller players (with limited marketing budgets) to fill the market void.

    See some the these emerging content producers and distributors here http://bit.ly/glfIkj

    This is similar to the prior scenario with the myopic music record labels; for every legacy company that lacks market foresight there are many others that gain from the slow transition.

    1. David, Thanks. This is exactly what I’m talking about. Innovators following new business models and innovation are poised to benefit greatly from the transition. Just because Hollywood can’t support the same business model forever doesn’t mean that content will disappear or that viewers will be left with nothing to watch but UGC clips on YouTube; it only means that new creators, distributors and content will emerge.

  4. Streaming has its downside. If you don’t have a high-speed internet connection, it staggers or simply fails. The VAST majority of people on the net are still on dial-ups. If two or more people in the same house want to watch different streamed shows, they both suffer. If you lose internet connection, you lose your show. If Heaven forbid, you don’t want to always have your computer connected to the internet, too bad. And as a content provider, you pay for bandwidth and storage. Yes, you pass that cost along to consumers but it then makes your product more expensive.

    I still think peer-to-peer networking is the future for entertainment. It gets the consumer to shoulder the burden of bandwidth and storage. It enables people to download and then watch when they want to watch. And if you insert micro-breaks (single ad commercial breaks) into the episodes, it doesn’t matter if people share them with each other. And, no, you don’t lose count of those shares as there are currently businesses that track the traffic of movies, TV shows, etc. on peer-to-peer networks. Big Champagne being one of them.

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