Are Netflix's Best Days Behind It?
Are Netflix's Best Days Behind It?

How important is it to own your favorite album or film? Habits are changing in the video market, where access is quickly overtaking ownership. In the first half of 2011, American consumers spent more money renting movies than purchasing them, according to figures released Friday by trade group Digital Entertainment Group (DGE). Broadcast and cable television, the most popular ways to access video, are not included in the report.

Total video rental revenue -- including kiosk, subscription, video-on-demand and brick-and-mortar -- rose 10.9% to $4.195 billion in the first six months of 2011. In contrast, total sales on packaged goods declined 17.15% to $4.140 billion.

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But consumers aren't using the same means to obtain video as they did in the past: Brick-and-mortar rental revenue was down 27.8% from the same period in 2010, and video-on-demand revenue rose just 4.4%.

Instead, the models typified by Netflix (subscriptions) and Redbox (kiosks) had the greatest gains. Subscription revenue -- both physical and digital -- climbed 45.7% to $1.564 billion. Kiosk revenue rose 39.8% to $806 million. With $897 million in rental revenue, the brick-and-mortar category is almost half the subscription category and barely larger than the kiosk category.

In spite of the clear gains in access business models, the DGE chose to highlight smaller growth in ownership. Sales of Blu-ray DVDs were up over 10% and electronic sell-through was up over 4%. The DGE also emphasized the hardware that takes advantage of Blu-ray's high-definition quality. In the second quarter, the number of American homes with Blu-ray players grew 16% while an additional 4.7 million HDTVs were sold.

In all, U.S. consumer home entertainment spending fell 5% to $8.335 billion in the first half of 2010. Home entertainment spending peaked at $21.8 billion in 2004, fell slowly to $21 billion in 2008 and dropped to $19.8 billion in 2010, according to DGE. The industry-funded nonprofit advocates and promotes the many benefits of home entertainment products. Its members include Twentieth Century Fox Home Entertainment, HBO Entertainment, Netflix, Warner Home Video, Microsoft, Dolby Laboratories and JVC Company of America.

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