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 (s NFLX) or Apple (s AAPL) 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 (s CSTR) have with studios like Warner Bros. (s TWX) and Sony Pictures (s SNE) 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 (s WMT) 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.
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