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Why You Need to be in the Land Grab for Digital Video Buyers

10 Oct, 2014 By: Mark Kirstein

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“It’s the eco-system, stupid”... to misquote a phrase from political elections long gone by.

Approximately 12 million to 15 million consumers in the United States buy digital video to own, while more than 100 million consumers still regularly buy DVDs and Blu-ray Discs.

But those scales are shifting.

According to DEG: The Digital Entertainment Group, consumer spending on discs dropped 8% in the first half of 2014 to $3.3 billion, compared with the first half of 2013.

While electronic sellthrough enjoyed a 37% jump in the period, growing to $671 million, this gain was far short of making up the declining physical dollars. Fortunately, subscription streaming revenue is growing too, albeit with lower margins.

As spending shifts from physical to digital, two things are clear. First, it’s vital that the overall video industry sustains purchase-to-own as a viable long-term behavior. If the video industry follows what happened in music, tens of millions of buyers will forever abandon their purchase behavior. While people still consume more music than ever, the number of actual buyers is a fraction of the past, and profitable revenue models remain elusive for most.

Second, digital service providers and retailers who want to capture and sustain these video buyers need to act now. Once a video consumer locks into a given digital ecosystem, such as Apple iTunes, Amazon or Vudu, it becomes increasingly difficult to lure them away. The more devices in a common ecosystem and the more titles owned in a digital library, the more committed the customer becomes. Of course, Apple has known this for some time, using their iTunes ecosystem as both a value-add to their devices, as well as a retention tool.

By measure of the massive advertising campaign Google has recently launched for their Google Play platform, it appears they are ready to go all in for these digital buyers as well. This battle is clearly not all about content. It’s about locking the customers into the device, content or service ecosystem.

Assuming many or even most of the 100 million physical video buyers will eventually become digitally active, there are still many millions of digital video buyers yet to be captured. But you need to capture these buyers before the competition does. This will take investment in marketing to increase awareness and communicate differentiation as well as in content discounts and free promotional content.

However, sitting on the sidelines putting short-term margins above the strategic imperatives will cede digital buyers perhaps forever. At a minimum, these buyers will be far more expensive to lure away later than to capture now.

Don’t miss the digital land grab. It’s on now.

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