Netflix Dethrones Apple, Tops Online Video Service By Revenue

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Netflix Tops Apple 2011 Online Video Revenue

Netflix passed Apple in 2011 to become the largest U.S. online movie service by revenue, according to a report released Friday by research firm IHS iSuppli. Netflix’s share of online revenue grew dramatically from 0.5 percent in 2010 to 44.0 percent in 2011.

Apple, which in 2010 held 60.8 percent of online video revenue, fell to 32.3 percent, allowing Netflix to surge to first place. Microsoft and Sony also saw their year-over-year percentage of revenue decrease, while Walmart-owned Vudu increased slightly, from 2.7 percent to 4.2 percent.

“2011 marked a sea change in the online movies business that saw the balance of consumer spending shift from a DVD-like transactional model to more TV-like subscription approach,” said Dan Cryan, research director for digital media at IHS iSuppli. “The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.”

The cause for the sea change was the substantial increase in subscription video on demand (SVOD) usage, where a customer pays a flat recurring fee for access to a large library of content, compared to traditional video on demand (VOD) services, where customers pay a separate fee for each title.

Revenue from SVOD, offered by services like Netflix and Hulu, grew a staggering 10,000 percent, from $4.3 million in 2010 to $454 million in 2011. VOD revenue, from companies like Apple and Vudu, also grew, but at a much slower pace, from $155 million in 2010 to $273 million in 2011.

IHS iSuppli 2011 Online Video Revenue

“We are in the midst of a significant change in the way people pay to consume movies online,” Mr. Cryan said. “All the significant growth in revenue in the U.S. online movie business in 2011 was generated by rental business models, which provide temporary access, not permanent ownership. Rental delivers unlimited consumption with a low monthly fee for older titles as well as cheap rentals of new releases, providing the kind of value that online consumers want.”

While Netflix and Apple combined now drive over 75 percent of revenue for the entire U.S. online movie industry, the companies, in practice, offer different value to consumers. VOD services like iTunes are used primarily to access new releases, while Netflix-like SVOD services offer consumers value by granting access to a wide variety and number of older titles.

“Effectively the market has split,” Mr. Cryan said. “Netflix and Apple are competing for some of the same consumer time and money. However, the core value proposition of the two services is actually very different.”

Netflix’s strong growth is expected to slow down dramatically in 2012, as the company competes for customers with other online services and cable companies. iSuppli therefore expects VOD to have stronger growth this year, as services like iTunes continue to expand with new features and devices.

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12 Comments Leave Your Own

Lee Dronick

It must have been due to the Netflix pop under ads.

Stefan Lee

It’ll be interesting to see these stats for the rest of the world as most Netflix movies in the US aren’t available on Netflix outside the US.

In the UK/Europe eg, Sky TV and Virgin also offer an on demand rental service like Apple and a handful of movies on demand (like Netflix), so kinda the best of both.  Would be interesting to see how Netflix & Apple movie services compare to services around the world.

Garion

Netflix growing from 0,5% marketshare in 2010 to over 44% in 2011? Color me sceptical. These numbers look very fishy.
Also, Apple fell from over 60% to about half that in just a year? Sorry, I dpn’t buy that.

Jim Tanous

Netflix growing from 0,5% marketshare in 2010 to over 44% in 2011? Color me sceptical. These numbers look very fishy.
Also, Apple fell from over 60% to about half that in just a year? Sorry, I dpn?t buy that.

Remember, this is online video revenue only. For Netflix, that excludes its DVD & Blu-ray by mail business and for Apple, it only includes videos sold through iTunes.

It’s also a comparison of revenue share. Apple’s revenue still increased, but its share decreased relative to Netflix.

Dave Chapin

The article refers to just Movies.  Do they mean video?  Or are they somehow excluding TV Shows?  The issue here is that you can’t order Netflix streaming for just Movies. You pay your 8 bucks and you have access to TV and Movies.  But with iTunes you can.  So basically I am wondering if this is the entire Netflix number but we are leaving off the iTunes TV Show revenue?

bateflix

bateflix.com finds all the movies with nudity on netflix by using their api

iJack

bateflix.com finds all the movies with nudity on netflix by using their api

And what’s their revenue rank?

Helge

As the numbers confim Apple is apparently doing something wrong here. From the customer’s POV the flatrate rental model much better; I would subsrcibe right away - if I could do this!
I love my apple TV and so far there are no other flatrate streaming video services here in Europe.

I think the problem is partly from bad and very inflexible Copyright Law over here. But Apple needs to offer this service now. Otherwise I will switch to the first service offering this model here in Germany; like I did with iTunes to Spotify.

lneumann

As the numbers confim Apple is apparently doing something wrong here. From the customer?s POV the flatrate rental model much better; I would subsrcibe right away - if I could do this!
I love my apple TV and so far there are no other flatrate streaming video services here in Europe.

Well, since reported revenue numbers appear to show ALL Netflix revenue (movies + TV) but just Movies for Apple (as the stats just talk about Movies and Movies can’t be separated from TV at Netflix), it’s not clear Apple is where the stats say they are—Apples-to-Apples.

But in any case, Apple lets users have the best of both worlds on their AppleTV and iOS devices.  You can get Apple’s premium, downloadable, redownloadable content AND you can get Netflix’s broad albeit mainly rerun, non-recent-releases catalog.

Finally, it’s not clear Apple could get the terms Netflix gets today from content providers if they tried to provide the same service. So economically it probably makes more sense to leverage Netflix’s agreements as long as Netflix is willing to support Apple’s devices.

archimedes

The thing that I find shocking is that apparently lots of people are actually buying (or perhaps renting?) movies and (buying) TV shows on iTunes!

It’s almost as if I saw a story that said “Analysts: Facebook, Twitter to surpass Ping in 2012.”

lneumann

The thing that I find shocking is that apparently lots of people are actually buying (or probably renting?) movies on iTunes!

It?s almost as if I saw a story that said ?Analysts: Facebook, Twitter to surpass Ping in 2012.?

Exactly. I was actually surprised Apple’s video business was even remotely close to Netflix’s.

Tom

I doubt if Apple perceives Netflix as competition. iTunes exists to support Apples selling hardware. That is also why Apple includes Netflix as part of its offering, as well as UTube. How many of those Netflix movies are watched on iOS devices? This article is about as useless as the one where iBookstore and Amazon are compared. Apple provides content so you will buy their devices. Amazon sells Kindles…

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