Netflix surpasses Apple in online movies

ITEM: Netflix officially displaced Apple to become the biggest online movie service in 2011, according to new figures from IHS Screen Digest.

That’s just in the US, and the ranking is in terms of revenues – Netflix accounted for 44% of the $992 million (€797 million) online movie pie in 2011, compared to 32.3% for Apple.

The number is more even impressive when considering that, just one year previously, Apple commanded over 60% of the subscription video on demand (SVOD) pie, while Netflix accounted for 0.5%. That doesn't mean Netflix’s success is coming at Apple’s expense – Apple saw its online movie revenues grow in 2011. The difference is the surge in popularity of SVOD services, which offer unlimited titles for a monthly fee. Such services reached $454 million last year, compared to just $4.3 million in 2010, says IHS Screen Digest:

As a result, SVOD became the largest segment of the U.S. online movie business in 2011, surpassing the other major parts of the market, transactional VOD and electronic sell-through. This change can be attributed to two factors: Netflix’s decision to start charging directly for online access, and the major growth in the number of people using online SVOD.

Despite the massive growth in SVOD, transactional VOD – dominated by Apple’s iTunes service – expanded 75% year on year to $273 million in 2011. It’s also worth noting that Netflix and Apple are targeting different consumer segments – iTunes caters to viewers who want to watch the newest releases, while Netflix focuses on older titles.

Anyway, the numbers have to be gratifying for Netflix, which otherwise had a rocky 2011 after alienating customers first by announcing a 60% price increase, then by hatching a plan to spin off its DVD-by-mail service into a separate business from its online streaming business. The latter was shelved three weeks after it was first announced, and has been widely criticized as a pretty bad idea in the first place.

That said, Netflix isn't likely to see that big a spike in growth again, according to Screen Digest:

Netflix's customer transition is now complete. And while its effect will be felt into 2012, which will be the first full year of paid streaming, Netflix's U.S. digital customer base is likely to expand at a slower rate, in keeping with premium pay-TV channels. Consequently, IHS expects transactional VOD to experience stronger growth than SVOD after 2012 unless there is a significant market entry, such as a standalone HBO streaming subscription or a full-fledged pay-TV subscription service delivered over the open Internet.