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Report: On Demand Revenue to Top $10 Billion

8 Nov, 2010 By: Erik Gruenwedel

Studio and multiservice operators’ quest to migrate consumers from physical to digital entertainment rentals should drive on demand revenue to $10 billion by 2014, according to a new report.

Scottsdale, Ariz.-based In-Stat said download activity to connected televisions will triple in the next four years, with transactional video-on-demand (VOD) effectively competing against repurposed sites such as Hulu, TV.com and Netflix.

Media companies have aggressively sought to supplant lower-margin physical rental discs found in video stores and kiosks with higher-margin transactional VOD.

“On-demand viewing of video content, whether by transaction or subscription, is taking hold,” said principal analyst Keith Nissen. “In order to ensure the continuation of existing revenue streams, new value propositions must be created.”

Despite year-to-date revenue from electronic sellthrough of movies (largely on iTunes) up 37% to $432 million through Sept. 30, according to DEG: The Digital Entertainment Group, analysts contend the distribution channel cannot replace declining disc sales.

“What we are seeing is the economics of the digital entertainment world have begun to shift,” Nissen said. “The future will be a hybrid ecosystem, made up of both linear TV and on-demand video revenue streams.”

That said, while digital distribution of entertainment now accounts for nearly 25% of home entertainment revenue, physical distribution through kiosks and subscription services continues to proliferate.

Redbox, the largest packaged media kiosk vendor, generated 143 million rental transactions during its most recent fiscal quarter, with average revenue per kiosk up more than 17%. No. 2 kiosk vendor, Blockbuster Express, reported a 20% rise in sequential quarterly revenue.
The two services combined to generate $335 million in combined revenue during the most recent fiscal period.

“We expect the DVD rental business to remain robust for at least another 10 years,” said Michael Pachter, analyst with Wedbush Securities in Los Angeles, in an Oct. 29 note.

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