Summary:

In what would be a watershed for home entertainment, IHS Screen Digest is predicting that the number of movies and TV shows legally streamed…

Netflix on TV in Living Room
photo: Netflix

In what would be a watershed for home entertainment, IHS Screen Digest is predicting that the number of movies and TV shows legally streamed and downloaded this year will for the first time surpass the demand for those films and shows on physical discs.

IHS predicts that subscription streaming services like Netflix (NSDQ: NFLX) and Amazon (NSDQ: AMZN) Prime, and other internet companies offering movies for digital sale and VOD rental, like Vudu and iTunes, will conduct around 3.4 billion individual U.S. movie transactions in 2012. That would be a 135 percent increase in digital home entertainment transactions over 2011. It would also surpass the 2.4 billion DVD and Blu-ray sales and rentals predicted for 2012. Note: IHS says discs will continue to spin off decidedly more revenue than streaming for years to come.

“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 Dan Cryan, senior principal analyst, broadband & digital media at IHS. “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.”

But don’t expect the rapid uptick in digital business — which IHS says is being driven primarily by subscription streaming — to spur recovery of a moribund home entertainment business that has struggled over the last five years with the ebbing DVD. In 2011, subscription streaming accounted for 94 percent of all paid online movie consumption, IHS reports. But because consumers pay an average of only 51 cents for every movie they stream on Netflix, compared to $4.72 for movies rented and sold on DVD and Blu-ray, the increased revenue from digital won’t come close to offsetting the decline of physical media. In fact, IHS predicts digital transactions will only yield around $1.7 billion in 2012, compared to $11.1 billion for physical formats.

Even by 2016, the research firm projects that digital viewing will only account for 17 percent of home entertainment revenue.

“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,” Cryan said. “We are looking at the beginning of the end of the age of movies on physical media like DVD and Blu-ray. But the transition is likely to take time: almost nine years after the launch of the iTunes Store, CDs are still a vital part of the music business.”

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