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Despite report headline Online Video surge looks irrepressible

Headlines that read, “Network delivery of video fails to live up to Hype,” can only be justified by researchers who have their head stuck in the groun

By PETER WHITE

Published: 6 January, 2011

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Headlines that read, “Network delivery of video fails to live up to Hype,” can only be justified by researchers who have their head stuck in the ground, as opposed to their feet on the ground, and Screen Digest, with a little help from iSuppli wants us all to regurgitate that headline around our respective blogs and periodicals, which is why we’ve done the opposite.

The logic is that the home entertainment market in the US is $18.5 billion, and that because networked delivered sales were just 12.2% of that in 2010, it’s in some way failing.

This is like the two shoe salesmen sent to work in the desert. The first calls home and says, “This is a terrible patch, no-one wears shoes,” the second calls in and says, “Thanks boss, hardly anyone here has shoes yet?”

The $18.5 billion was over $22 billion a few short years ago, and a 12.2% market share looks to us like a suddenly market turnaround, while online video has been with us since 2006, but it represented under 10% of the market until this year (see diagram below).

In 2007 it grew around 23%, then 32% in 2008, then a disappointing 15% and now it’s back to a healthy 22%. Looks like it’s worth the hype to us. And this is in a market where the overall total is going down, so it was just 4.4% of the market in 2006 and today it is over 10% for the first time, right the way up to 12.2%.

What must be driving headlines like the one being pushed in this release, is that the total revenue, across both physical and online, for both rental and purchase, has been in free fall since the heady days of 2006. And it doesn’t look like being reversed. Perhaps if Screen Digest took in ALL online video and not just films made by its existing, traditional customer base, then it might get the full irrepressible picture.

So right now researchers like Screen Digest are seeing the only silver lining in the fact that Blu-ray is growing so fast up 64.2% in sales and with rentals up by 105.5%.

“With consumers continuing to be very cautious in their spending habits, the popularity of the rental model reasserted itself in 2010,” said Tom Adams, principal analyst and director, US Media, for Screen Digest. “This consumer mindset sent Blu-ray rentals soaring and could be seen on the Internet too, where video-on-demand (VOD) rentals jumped 55.7%. In contrast electronic sell-through on networks grew by just 27%.”

The rise of the US Blu-ray and network-delivery markets in 2010 contrasted with the 3.8% decline in overall home video entertainment spending for the year with the biggest factor driving the decline, a 15.6% plunge in DVD retail sales, amounting to a $1.5 billion decrease in revenue, with falls in DVD rental down 12.4% percent, or $749 million.

These two factors caused the entire US market for retail sales and rental of physical home video entertainment products to decline by 6.5% for the year. But while Blu-ray is really just going through the existing DVD channel, so this is a transition, the online market is an entirely new one. Hence the headline that Faultline sees online video as surging, not overhyped.

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