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Hollywood Has a Growing 'Love-hate' Relationship with Online Distribution

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July 30, 2012

Hollywood Has a Growing 'Love-hate' Relationship with Online Distribution

Hollywood studios and video entertainment service providers understandably have a wary relationship with new distributors such as Netflix, iTunes, Amazon and others. On one hand, online delivery of movie and TV content is seen as the future. On the other hand, too swift an arrival of that new business could destroy a physical delivery business that, though challenged, remains important.

That same sort of ecosystem tension was seen recently in the contract dispute between DirecTV and Viacom (News - Alert), which kept 26 Viacom networks dark on DirecTV for weeks, as well as similar disputes between Dish Network and AMC, and Time Warner Cable and Hearst. 

Basically, content owners and distributors are sparring within the ecosystem as content costs are driving distributors to raise prices, risking growing consumer ire, while programmers continue to seek higher fees whenever contracts need to be renewed.

In a somewhat similar way, Netflix and even video on demand, to an extent, continue to confound content owners, as new forms of distribution compete with legacy methods. The issue, as always, is that new distributors are creating growing amounts of revenue, as older distribution methods falter.

The digital side of the business generated $2.4 billion in the first quarter of 2012, according to the Digital Entertainment Group, representing growth of 78 percent. Subscription video on demand grew 430 percent for the first six months to $1.1 billion.

Overall, U.S. home entertainment spending rose 2.5 percent to around $4.45 billion in the first quarter, according to the Digital Entertainment Group. That means home video revenue has grown for two out of three of the last quarters, a welcome change from revenue trends that had been falling for three straight years.

Since peaking at around $21.8 billion in 2004, the U.S. home entertainment industry has seen steady declines, falling to $18.4 billion in 2011.  

And the shift top online delivery keeps growing in importance. IHS (News - Alert) Screen Digest has predicted that the number of movies and TV shows legally streamed and downloaded in 2012 will for the first time surpass the demand for those films and shows on physical discs.

IHS predicts that online streaming services like Netflix and Amazon Prime, Vudu and iTunes, will conduct around 3.4 billion individual U.S. movie transactions in 2012. That would be a 135 percent increase in digital home entertainment transactions over 2011. It would also surpass the 2.4 billion DVD and Blu-ray sales and rentals predicted for 2012.

And despite studio unease about Netflix, Netflix U.S. streaming revenue of $1.04 billion in the first half of 2012 might be largely responsible for the growth of content owner revenue.  

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Edited by Brooke Neuman

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