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Discussion Starter · #1 ·

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Hollywood's hopes for a future built on digital film downloads have been undermined by research showing cooling consumer demand for movies online.


The film industry was banking on digital distribution eventually replacing the income it generates from sales of DVDs, which have been in steep decline for the past two years.


But while sales of digital films rose sharply in 2007 and 2008, growth stuttered in 2009, according to a report by Screen Digest.

The media research group had forecast total online film sales in the US of $360m for 2009, based on the sharp growth of 2007 and a near doubling of sales in 2008 to $219m.


Yet, after a slowdown in the second half of the year, US revenues for 2009 were substantially lower than forecast at $291m.



"The market just cooled off," said Arash Amel, a research director with Screen Digest. "This wasn't caused by economic factors . . . the level of interest in digital downloads just isn't there."



He believes consumers have been deterred by an array of competing online platforms that prevent viewers from watching digitally downloaded films on the devices of their choice.


"Digital downloading is characterised by its restrictions - it's all about what viewers can't do rather than what they can do," added Mr Amel.


Hollywood has moved to address problems associated with digital distribution yet the industry is divided on the best way forward.


Walt Disney has created Keychest, which it describes as "enabling technology" that allows people to buy a film once and watch it anywhere. But the rest of the industry is supporting the Digital Entertainment Content Ecosystem coalition, backed by Sony Pictures.


Screen Digest has slashed its growth forecasts for digital film sales by 30 per cent.
http://www.ft.com/cms/s/0/f03bbef6-2...nclick_check=1
 

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Unfortunately I cannot read the article at the link, or find it at Screen Digest.


But I am wondering if their reports are Europe specific, like this one:

Quote:
Blu-ray disc conversion rate slow


Most consumers seem happy to stick with DVD, so Blu-ray still accounts for less than 10 per cent of video sales in the big European markets.

http://www.screendigest.com/reports/...2-f1/view.html
 

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Ah... an article I can read about the story:


Quote:
When will Hollywood learn?


The movie studios are overlooking their real value, just as the record labels did before them. Hollywood is desperate to guard bits: the 1s and 0s used to store its prized assets. But people don't care about the bits. They care about watching them. Yet Hollywood continues to focus on protecting bits instead of making access to them easy and entertaining.


The music and TV industries are ahead of the movie industry in this, with TV's Hulu and music's embrace of iTunes. But they, too, still drag their feet. For example, the BBC continues to block access to its iPlayer from open-source players, and the U.S. music industry can't seem to come to grips with the highly popular Europe-based Spotify service.


Meanwhile, Apple is cleaning up. Apple, Hollywood's sometime nemesis and sometime partner, understands where 21st-century value resides. iTunes, iLife, and iPods/iPhones are all about easy access and enjoyment of digital media. And Apple is raking in the profits from this approach.


Value has shifted in the digital age. Value is still created by scarcity, but digitization has made attention and the right content at the right time scarce, not the content itself. In a world of freely copyable bits, there's no shortage of them. Hence, companies and individuals are happy to pay companies like Google, Canonical, Facebook, and others to sift through the multitudinous bits and make sense of them.


Or, in the case of Apple and Hollywood, make them easy to enjoy on a range of devices with minimal restrictions.


The 20th century was all about shipping bits in ever-more convenient form factors. The 21st century will be all about filtering the avalanche of content and creating the devices through which we digest them.


Hollywood is in the enviable position that people still love its products and are willing to pay for them. It's just a question of how we will pay for them. It certainly won't be business as usual, but it can be lots and lots of business for Hollywood, if it plays its cards, er, bits right.
http://news.cnet.com/8301-13505_3-10450675-16.html
 

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Was able to find a bit more about the story:

Quote:
Sales of Blu-ray discs continue to rise but total home entertainment sales are declining because of waning interest in DVDs.

Home entertainment revenues across the industry fell more than $2.6bn in 2008 as sales of DVDs tumbled.
 

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Discussion Starter · #5 ·

Quote:
Originally Posted by PSound /forum/post/18230217


But I am wondering if their reports are Europe specific, like this one:...

Uh, from the OP:
Quote:
The media research group had forecast total online film sales in the US of $360m for 2009, based on the sharp growth of 2007 and a near doubling of sales in 2008 to $219m.


Yet, after a slowdown in the second half of the year, US revenues for 2009 were substantially lower than forecast at $291m.
 

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Discussion Starter · #6 ·

Quote:
Originally Posted by PSound /forum/post/18230250


Ah... an article I can read about the story:

http://news.cnet.com/8301-13505_3-10450675-16.html

Quote:
Originally Posted by PSound /forum/post/18230271


Was able to find a bit more about the story:

Huh? I don't know what happened to the link in the OP, but I pasted the full article.


Here is the gist:

Forecast for 2009: $360M

Actual for 2009: $291M


Actual for 2008: $219M


Growth from 2008 to 2009: $72M, expected to be $142M. Reasons for why the actual amount fell short of the forecast amount include:


"The market just cooled off," said Arash Amel, a research director with Screen Digest. "This wasn't caused by economic factors . . . the level of interest in digital downloads just isn't there."


"He believes consumers have been deterred by an array of competing online platforms that prevent viewers from watching digitally downloaded films on the devices of their choice."


""Digital downloading is characterised by its restrictions - it's all about what viewers can't do rather than what they can do," added Mr Amel."
 

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Quote:
Originally Posted by bt12483 /forum/post/18230530


""Digital downloading is characterised by its restrictions - it's all about what viewers can't do rather than what they can do," added Mr Amel."

Exactly.


I never spent a nickel at the iTunes music store until they got rid of DRM. Now I buy regularly.


It's the same with video. I'd rent, but the 24-hour time limits are just a non-starter. Fuqqq that!


Purchasing videos is even worse. I refuse to buy DRMed crap. The sordid history of the industry locking stuff down and then abandoning the users is revolting. "Plays for sure", anyone? If it's so good, why does Microsoft's brown bar of turd (the Zune) not support it?
 

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The link works, I just checked. The Financial Times is a paying site, and only allows you to view one article a day for free. Hey, it's the digital revolution



In case you still have doubts:



Quote:
Here is the gist:

Forecast for 2009: $360M

Actual for 2009: $291M


Actual for 2008: $219M


Growth from 2008 to 2009: $72M, expected to be $142M.

So growth was half what was expected.

Quote:
""Digital downloading is characterised by its restrictions - it's all about what viewers can't do rather than what they can do," added Mr Amel."[/i]

And the sad part is that non-physical supports had the potential to be infinitely more flexible and powerful than physical. In theory, you could buy any known film and download to your home, regardless of the distance and across nations. Right?


The sad reality is the opposite: digital is way more restrictive than disc. Forget disc regions - I'm in Europe and I can't even watch last Sunday's goals from the Spanish soccer league!
 

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Non-physical has the potential to offer those advantages and more. As the report discusses the decline in physical media then the studios must adapt and offer consumers what they want via Digital Delivery, or see the entire market contract (as is happening today).


And has been pointed out in other analysis, the report in no way captures any Netflix revenue which is obviously being driven by their streaming capabilities.



Here is data on what was captured, which appears to be purely movie downloads (not TV purchases or TV ad-based viewing, or Netflix usage).

Quote:
US online movie downloads market


2007

Download-to-own: $98m

Internet VOD: $24m

Total (DTO+IVOD): $122m


2008

DTO: $144m

iVOD: $69m

Total (DTO+IVOD): $213m


2009

DTO: $199m

iVOD: $92m

Total (DTO+IVOD): $291m
 

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Quote:
Originally Posted by PSound /forum/post/18234014


And has been pointed out in other analysis, the report in no way captures any Netflix revenue which is obviously being driven by their streaming capabilities.

It is obviously not being driven by streaming. The Netflix CFO just said that streaming is a very big tax on the current profitability of the business.


I may be a layman in finance but that certainly doesn't look like a revenue driver. Netflix must know that people subscribe for the discs first. Streaming is a distant second.
 

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Quote:
Originally Posted by Grubert /forum/post/18234298


It is obviously not being driven by streaming. The Netflix CFO just said that streaming is a very big tax on the current profitability of the business.


I may be a layman in finance but that certainly doesn't look like a revenue driver. Netflix must know that people subscribe for the discs first. Streaming is a distant second.

He typically ignores the flip side and insists Netflix is being driven by streaming due to the deterioration of DVD. He constantly ignores the fact that I state that Netflix isn't willing and able to pay what others' are for digital rights to top shelf, new movies.

Quote:
Our studio relationships are entirely about how much money we do or don't pay them, and how good of a partner we are at the negotiating table, he said. We are very focused on maintaining health supplier relationships independently of what's happening in the macro world.


Indeed, McCarthy said there exists constant tension between how much earnings growth Netflix can produce and how much future growth the company invests in the form of additional licensed content and other costs.
 

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Quote:
Originally Posted by Grubert /forum/post/18234298


It is obviously not being driven by streaming. The Netflix CFO just said that streaming is a very big tax on the current profitability of the business.


I may be a layman in finance but that certainly doesn't look like a revenue driver. Netflix must know that people subscribe for the discs first. Streaming is a distant second.

There is a difference between revenue growth and profitability.


Netflix could decide to not invest in streaming and see current growth drop. Their stock would also get hammered as investors realized that their future relevance was nil.


They are making an investment to drive subscriber growth as well as build a road map for what to do when physical media is no longer a player.


Despite ANY comments about physical media rental growth in the near term, it is clear that it will be declining in the mid to long term. Physical media as ZERO long term growth potential.


Uptake of Digital Distribution is required for the industry. The studios MUST work to make Digital Distribution a true customer value-offering, including making "Any stream to any screen" functionality a reality. That is why DECE and Keychest are such important initiatives.
 

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Quote:
Originally Posted by Grubert /forum/post/18234298


It is obviously not being driven by streaming. The Netflix CFO just said that streaming is a very big tax on the current profitability of the business.


I may be a layman in finance but that certainly doesn't look like a revenue driver. Netflix must know that people subscribe for the discs first. Streaming is a distant second.

It makes sense (if you think about it) that they would describe it as a tax on their profitability. After all, it brings in no additional money via monthly fees (according to Netflix themselves) and all of those servers cost money to keep up and running. Plus, someone has to pay the licensing for the content (and it's not the customers, since they're not being charged anything extra for the streaming.)


Even if it is driving "growth" (as in, helping to bring in new customers,) I don't know how anyone could - with a straight face, at least - claim that it's "driving revenue." Hell, the CFO just called it a "very big tax on the current profitability" of Netflix.
 

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Quote:
Originally Posted by lakers42 /forum/post/18234419


He typically ignores the flip side and insists Netflix is being driven by streaming due to the deterioration of DVD. He constantly ignores the fact that I state that Netflix isn't willing and able to pay what others' are for digital rights to top shelf, new movies.

Actually, that is not true. That is how you choose to view my viewpoint.



I have stated very clearly that Netflix started the streaming initiative because they needed to build a model to take them beyond physical media in the long term. I think that even they were surprised about the major near term positive impact in subscriber growth.


They have decided to ride that wave and invest that growth right back into acquiring streaming content in a very structured manner. Indeed, if you had read their financial statements and earnings call they specifically stated what profit margin they are committed to deliver to their investors while investing the remainder of the added revenue, driven by streaming, right back into streaming.


What you have failed to recognize is that it is that as revenue increases, and Netflix continues to reinvest in streaming their content quality and breadth will naturally increase.



The scenario where you were comparing what HBO could pay compared to what Netflix could pay was interesting since it drew a good picture of how important Netflix was becoming to the studios as a revenue source. HBO currently has $4 billion in revenue while Netflix has $1.67 billion in revenue. Netflix is expected to grow 30% this year. They are closing the revenue gap with HBO, and are committed to investing in streaming.
 

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Quote:
Originally Posted by Steeb /forum/post/18234480


It makes sense (if you think about it) that they would describe it as a tax on their profitability. After all, it brings in no additional money via monthly fees (according to Netflix themselves) and all of those servers cost money to keep up and running. Plus, someone has to pay the licensing for the content (and it's not the customers, since they're not being charged anything extra for the streaming.)


Even if it is driving "growth" (as in, helping to bring in new customers,) I don't know how anyone could - with a straight face, at least - claim that it's "driving revenue." Hell, the CFO just called it a "very big tax on the current profitability" of Netflix.

It is all about the concept of investment.

Quote:
Our studio relationships are entirely about how much money we do or don't pay them, and how good of a partner we are at the negotiating table, he said. We are very focused on maintaining health supplier relationships independently of what's happening in the macro world.


Indeed, McCarthy said there exists constant tension between how much earnings growth Netflix can produce and how much future growth the company invests in the form of additional licensed content and other costs.


Most companies do not see such near-term growth from their long-term investments. Is there a cost to streaming investment? Of course.


Does Netflix think it is not an important long-term investment, or a current driver of growth? No.
 

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Quote:
Originally Posted by PSound /forum/post/18234467


There is a difference between revenue growth and profitability.


Netflix could decide to not invest in streaming and see current growth drop. Their stock would also get hammered as investors realized that their future relevance was nil.


They are making an investment to drive subscriber growth as well as build a road map for what to do when physical media is no longer a player.


Despite ANY comments about physical media rental growth in the near term, it is clear that it will be declining in the mid to long term. Physical media as ZERO long term growth potential.

Uptake of Digital Distribution is required for the industry. The studios MUST work to make Digital Distribution a true customer value-offering, including making "Any stream to any screen" functionality a reality. That is why DECE and Keychest are such important initiatives.

This is a good point but also the industry MUST continue to support physical media. Its still bringing in the $$$. Also if you notice the decline in the physical market have slowed consideribly since last year. Have we hit bottom... Maybe.

A poster in another forum says it well:
Quote:
Optical disc options also keep getting better.


Blu-ray for high quality on one side, cheap $1 DVD rentals at Redbox the other, DVD at Walmart and other retailers in the middle.


People still understand the concept and ease of use and convenience of putting a plastic disc in their player at home without the PITA factor of figuring out how downloads work. Blu-ray players with online streaming options may actually end up being the factor that gets streaming into homes when the bandwidth and ease of use catches up.


But packaged media lends itself to ownership and streaming and downloads more to rental use. It may stay that way for a while.
 

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Quote:
Originally Posted by Chuckwl /forum/post/18234752


This is a good point but also the industry MUST continue to support physical media. Its still bringing in the $$$. Also if you notice the decline in the physical market have slowed consideribly since last year. Have we hit bottom... Maybe.

A poster in another forum says it well:

Without a doubt. The raw revenue numbers from DVD are significant and absolutely need to be supported.


At the same time the studios have to move to grow Blu-ray and Digital Distribution to make up for the decline in DVD.
 

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Discussion Starter · #18 ·

Quote:
Originally Posted by PSound /forum/post/18234467


There is a difference between revenue growth and profitability.

And there is also a difference between subscriber growth and revenue growth. You seem to think they are 1:1, hand in hand. I don't.


For example:
Quote:
Headwinds for Almighty Netflix


Trefis, the online stock analysis community, has lowered its price estimate for Netflix from $59 to $57 (vs. today's close of $61) based on some trends observed in its recently announced strong fourth quarter 2009 earnings. One tidbit that caught a lot of people's attention is the company's shift toward more low-priced $8.99 plans, which is not the greatest for Netflix because it doesn't generate as much revenue yet still allows customers unlimited online streaming of movies and TV shows. More people are getting used to streaming movies, which saves Netflix on shipping costs, but it also means Netflix doesn't make the $20/month from plans that allow customers to keep 3-4 DVDs in the house. The faster Netflix can shift customers to online streaming the more valuable the stock could be. Here's the bulletin released today, along with the modeling widgets that let you come up with your own price.


Two ongoing trends we see for Netflix:


1. We expect revenue per subscriber to continue to decline as Netflix adds subscribers due to two trends:


(i) Increasing number of free subscribers

...


(ii) Increasing adoption of lower cost plans


Netflix is seeing great demand for its $8.99 low-cost plan, which includes renting unlimited DVDs (one at a time) and access to unlimited streaming service. As a result, the average subscription fee has declined slightly more than what we had originally expected. We estimate the average monthly subscription fee to further decline to about $12 per subscriber by the end of Trefis forecast period.
http://blogs.forbes.com/greatspecula...ighty-netflix/

Quote:
Originally Posted by PSound /forum/post/18234467


...Uptake of Digital Distribution is required for the industry. The studios MUST work to make Digital Distribution a true customer value-offering, including making "Any stream to any screen" functionality a reality. That is why DECE and Keychest are such important initiatives.

That is cute, you quoted your own sig!

Quote:
Originally Posted by PSound /forum/post/18234545


...I have stated very clearly that Netflix started the streaming initiative because they needed to build a model to take them beyond physical media in the long term. I think that even they were surprised about the major near term positive impact in subscriber growth. They have decided to ride that wave and invest that growth right back into acquiring streaming content in a very structured manner.

Wait, how does one invest growth? You invest MONEY, not growth. There you go interchanging those terms again.


You do know their is a difference between subscriber growth and cold, hard cash, right? And that subscriber growth may not equate to an equal amount of revenue growth? As shown above...


For instance, if Netflix signs up the majority of new subscribers to their $8.99 plan, when far more used to go for the more expensive plan(s), they may be getting new subscriber growth, while bringing in less $$ than before with their higher tier plans. They better hope they add enough new people to average or increase their revenue as a result of their higher priced plans attracting less and less people. Just because they might save some money on postage doesn't mean their revenue growth will track 1:1 with their subscriber growth.

Quote:
Originally Posted by PSound /forum/post/18234655


It is all about the concept of investment.


Most companies do not see such near-term growth from their long-term investments. Is there a cost to streaming investment? Of course.


Does Netflix think it is not an important long-term investment, or a current driver of growth? No.

Please tell us when streaming generates revenue for Netflix. Not subscriber growth...but significant cash money growth. As of now, it appears to still be a "tax" and provides a source of "tension". Two words that don't really jive with the rosy picture you paint around here on a daily basis.
 

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Quote:
Originally Posted by bt12483 /forum/post/18235014


And there is also a difference between subscriber growth and revenue growth. You seem to think they are 1:1, hand in hand. I don't.

Subscriber growth and revenue growth are different. In Netflix's case they are both going up.


Their model and their current client base basically dictates that will happen as the difference between their current ARPU and their lowest price model is not great enough to offset any revenue growth from new subscribers. There is a theoretical model where all of their current high ARPU subscribers would all immediately move to the lowest priced offering, but that is purely an academic discussion as there is zero suggestion that this would or is happening en masse.


You seem to be confusing ARPU with revenue growth. Different metrics.


There are different ways to grow revenue, including upping ARPU. Again, that is academic to the topic at hand.


If you understand Netflix's model it is clear that there is a direct correlation between subscriber growth and revenue growth. For Netflix, subscriber growth produces revenue growth. Period.

Quote:
Wait, how does one invest growth? You invest MONEY, not growth. There you go interchanging those terms again.

Revenue growth is money. Netflix is increasing revenue with their subscriber growth (see above). And they are taking that revenue growth and investing it into streaming while maintaining 10-11% margins for their investors.

Quote:
You do know their is a difference between subscriber growth and cold, hard cash, right? And that subscriber growth may not equate to an equal amount of revenue growth? As shown above...


For instance, if Netflix signs up the majority of new subscribers to their $8.99 plan, when far more used to go for the more expensive plan(s), they may be getting new subscriber growth, while bringing in less $$ than before with their higher tier plans. They better hope they add enough new people to average or increase their revenue as a result of their higher priced plans attracting less and less people. Just because they might save some money on postage doesn't mean their revenue growth will track 1:1 with their subscriber growth.

Again, you are demonstrating a misunderstanding of revenue growth vs ARPU.


Read the beginning of this post. With Netflix's business model, the result of subscriber growth is revenue growth.



Quote:
Please tell us when streaming generates revenue for Netflix. Not subscriber growth...but significant cash money growth. As of now, it appears to still be a "tax" and provides a source of "tension". Two words that don't really jive with the rosy picture you paint around here on a daily basis.

It already is generating revenue for Netflix. Every new subscriber who signs up for Netflix with streaming being a factor in the decision is revenue growth tied to streaming. They have stated that the attach rate to streaming devices (consoles, BD players, etc) has been a fuel for their subscriber and revenue growth.
 

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BTW...

Quote:
Trefis, the online stock analysis community, has lowered its price estimate for Netflix from $59 to $57 (vs. today's close of $61)

The stock closed at $69.70 yesterday. ROFL!!
 
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