The big Hollywood studios have relied on DVD sales as the biggest portion of home entertainment spending over the past several years. But consumers are becoming less and less interested in owning content, and are moving to more convenient, on-demand video solutions. Now, when trying to make home entertainment decisions, consumers are turning to Netflix (s NFLX) instead of DVD, Redbox (s CSTR) and even pirated copies of films online, according to Google (s GOOG) search data.
In a recently released Google research paper entitled “A Window into Film” (hat tip to BTIG analyst Richard Greenfield), the search giant showed that interest in viewing movies on Netflix has grown dramatically over the past several years, mirroring growth in the company’s streaming video service.
The data confirms what everyone already knows: Consumer interest in owning DVDs has fallen off a cliff. Searches for DVD-related terms were down more than 45 percent from their peak. But while searches for DVDs have declined, Netflix search queries have exploded, increasing more than 90 percent in both 2009 and 2010.
Netflix now has more than 20 million subscribers, after growing by more than 50 percent in 2010. For Hollywood, that’s both a positive and a negative. A more robust customer base means Netflix has more money to spend to license content from the major studios. At the same time, Google search trends indicate consumers aren’t as interested in owning DVDs anymore, which is bad news, considering the DVD market had been a huge part of Hollywood’s home entertainment revenues.
The Hollywood studios hope to get consumers buying again, but recognize that to do so they’re going to have to make it easier for customers to purchase movies digitally. With that in mind, movie distributors have teamed up with tech companies to spearhead the Digital Entertainment Content Ecosystem (DECE), a consortium designed to create a “digital rights locker” that will enable consumers to buy a piece of content once and be able to watch it on any number of devices. The DECE’s Ultraviolet format goes live later this year, with plans to expand features and availability soon after. Even so, it might not be enough to change the shift in consumer behavior from a purchase model to an on-demand rental model.
Interestingly, there’s one bit of positive news for Hollywood: The extreme growth in Netflix subscribers and related searches has coincided with a decline in the number of users searching for pirated movies online. Searches for generic “free movie” and torrent terms have declined steadily since hitting a peak in early 2009 — at just about the same time Netflix search terms started to take off. So while studios might not be making as much from Netflix viewing as they would from a DVD sale, at least viewers aren’t trying to watch those films for free.