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Netflix Hurting Packaged Media in Sweden

2 Jul, 2014 By: Erik Gruenwedel

As subscription-streaming pioneer expands into Europe, its negative impact on disc purchases and rentals becomes real

Netflix’s global bid to offer all-you-can watch movies and TV shows for $9 a month may be a boon to consumers, but its economic impact on home entertainment retail is finally hitting home.

Sweden is set to become the first home entertainment market in which digital revenue surpasses physical in 2014, according to AdvancedTelevision.com, which cited a Futuresource Consulting study. Digital spending on video entertainment (excluding multichannel video program distributors) is projected to reach €153 million ($209 million), compared with €146 million ($199 million) for packaged media.

Sales and rental of physical discs represented 13% of total video spending in Sweden in 2013, which was down 24% from 2012 but still double consumer spending on digital entertainment. With the arrival of Netflix in Scandinavian countries Finland, Sweden, Denmark and Norway in October 2012, packaged-media consumers are apparently rethinking their purchases.

“Sweden is an extreme market for home video spend … and it’s witnessing faster changes than most other markets and is one of the most advanced in Europe,” said Joanna Wright, senior market analyst at London-based Futuresource.

Wright said a combination of Sweden’s advanced broadband, infrastructure and connected device penetration have helped trigger the migration. Indeed, Sweden telecom ComHem currently ranks among the fastest broadband providers in Netflix’s monthly ISP speed index.

The video trends mirror music where 75% of all music purchases are digital compared with 25% two years ago.

While pay-TV continues to dominate home entertainment spending, including 70% market penetration in Sweden, it isn’t growing compared to subscription streaming. Netflix had more than 13 million international subscribers at the end of the last quarter, with most of the growth occurring in Europe.

The SVOD leader is launching service in Germany, Belgium, France and Spain later this year.

“2013 saw the first full year of new SVOD services and they quickly picked up a sizable customer base with subscription growing from 4% to 20% of the home video market,” Wright said. “The new entrants to the SVOD market clearly boosted the awareness of services and helped the market grow, Netflix has been a key driver of this and quickly became market leader.”

To combat the move toward commodity pricing, retailers and studios are hard-lining release windows, with new titles given early availability on electronic sellthrough channels similar to the United States.

“Largely due to continued use of release windows in the video market, there will be a significant packaged video buying base particularly focused on new releases that will support the growing transactional VOD market,” Wright said.

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