UltraViolet’s Real Challenge: People Don’t Buy Movies Online

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After two-and-a-half years in the making, the DECE finally announced its road map for a digital rights locker, which will begin to be made available to consumers in mid-2011. But not long after the industry consortium introduce the road map for its “buy once, watch anywhere” offering, evidence has emerged to show that consumer interest in actually owning digital media is on the decline. Apparently, people don’t buy movies online anymore; they just rent them.

BTIG Research analyst Richard Greenfield released new data today that shows revenues from electronic sell-through (EST) — i.e. buying a movie online — actually declined in the fourth quarter, after showing relatively steady growth throughout the rest of the year. While EST sales grew a total of 16 percent for the full year 2010 — from $589 million to $683 million — those sales fell 8 percent in the fourth quarter of the year, from $273 million a year before to $251 million in the last three months of 2010.

At the same time, the digital rental market proved extremely robust. Greenfield showed that video-on-demand (VOD) and iVOD (online rental) revenues grew 23 percent in the fourth quarter, from $488 million to $600 million, and 21 percent over the course of the full year. That growth in rental revenues, especially when compared to the decline in digital sales, suggests a shift in consumer behavior that might be difficult for the industry to overcome.

Of course, the DECE’s entire raison d’ĂȘtre is to combat this shift to on-demand viewing, by offering viewers the ability to buy a piece of content and watch it across multiple devices — whether they be connected TVs, Blu-ray players, smartphones, tablets or other mobile viewing contraptions. The idea is that once a consumer has purchased a piece of content, he or she will be able to watch it anywhere, and will no longer have to worry about buying it ever again. But that’s all a pretty nebulous concept, and one the DECE will have a hard time explaining to consumers.

At the same time, consumers are getting used to the transient nature of video content online, and are finding on-demand viewing a better value, anyway. Blame Apple and, to a certain extent, Netflix for getting consumers used to the idea that they no longer need to own a piece of content to enjoy it. Apple is aggressively pushing video rentals as opposed to purchases, particularly with its second-generation Apple TV set-top box. And Netflix is enabling users to pay a relatively low subscription fee for an unlimited amount of video viewing, not just online, but on more than 250 different connected devices.

All of which is to say that the DECE has its work ahead of it if it’s going to convince users to pay for a piece of content they can’t hold, but that will be viewable online.

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