Internet video has the media industry worried. DVD sales, which are projected at $17 billion today, are expected to slow down substantially in the next few years, as online streaming picks up momentum. In the meanwhile, Avatar, with its record breaking sales of $2.2 billion, has injected new hopes in the industry. Would movies like Avatar be enough to save the sinking ship?
A key incentive of buying a movie as opposed to renting one is ability to watch it multiple times, whenever you want to. However, with the advent of online streaming, the incentive to own a DVD is going away. Netflix, for example, encourages more people to watch movies online by giving them instant access to a huge digital library at a minimal fee. Many studio executives are rightly concerned that this trend will reduce the market size of DVD sales, while promising only a small gain in streaming revenue.
The DVD sales were estimated at $17 billion in 2007, but the sales will undoubtedly decline fast as online video goes main stream. Netflix, the leader in online video streaming, is expected to generate $2.2 billion in revenue in 2013 – assuming it keeps growing at 22% year over year. Blu ray sales are estimated at $2.36 billion in 2013. The sales of online streaming (Netflix) and blu ray sales combined still do not match up to $17 billion in DVD sales. What’s more, studios need to worry about online piracy that can cost them up to 6.1 billion, a number that would only be higher with online distribution.
But that’s not it. On the device front, Boxee and Apple’s iPad promise to change the way we watch online videos by providing better portability and excellent viewing experience for internet based content.
In response, studios are trying several different models such as a deal with Sundance and YouTube to rent movies. Warner is said to have given Netflix up to 50% fee discount in exchange for the delay of new releases by a month. However, I doubt this will reverse the consumption trend of DVDs.
New media strategy: Discrimination on both quality and availability
But all is not bad for movie studios. Lines of people waiting to watch Avatar in a theater were long even after a few weeks of the release. The movie distinguishes itself on its superior image quality and unique theater experience. With a production budget of $300 million to 500 million, Avatar will contribute greatly to Fox’s profitability next year.
It is easy to see that Avatar type of movies will also be more successful in Blu ray format (the hopeful replacement of DVD) than regular streaming, which does not provide the same picture quality – at least yet.
Avatar is a glimpse of what might save this industry. Movie experience at homes and in theaters needs to stay ahead of streaming technology. As box office numbers have shown, consumers are willing to pay for 3D experience. Soon, 3D enabled TV will enter the home video market. Electronic manufactures just need to figure out a standard that will combine both blu ray and 3D image processing. 3D streaming via Internet connection will take longer due to infrastructure requirements. However, storage solution is easier to achieve. It would be much easier to pack more on a disc than to stream it on an overhauled infrastructure.
Going forward, studios should embrace the online streaming market but differentiate it from its DVD market based on features, quality, and time. In order to do so, they need to invest aggressively in high quality 3D movies that would set the viewing experience between streaming and purchased DVDs apart. Consumers will be more willing to pay a premium to watch higher quality content, either in theaters or 3D TVs. At the same time, they will watch internet streaming sources such as Netflix for casual consumption.
