Bloomberg reported last week on a study by IHS Screen Digest which found that in the US legal online viewings of films will hit 3.4bn this year, up from 1.4bn in 2011, whilst viewings from DVDs and Blue-ray discs will shrink to 2.4bn from 2.6bn.
The shift from physical do digital usually shrinks markets – look at what Wikipedia did to the encyclopedia market – but that doesn’t seem to be the case here, at least for 2012. IHS also found that the average payment for an online movie was 51 cents (typically as part of an all you can eat subscription service) whilst physically purchased videos came in at $4.72. Multiplying these numbers by the predicted online viewings shows that in spite of the big difference in price the growth in online will more than offset the decline in physical, and the overall spend on movies will actually increase slightly ($76m, 0.6%).
Falling prices will inevitably lead to increased consumption of movies, and I suspect that is part of the reason behind the rapid growth in online viewings, and the market is now in transition to a new equilibrium and it will be interesting to see where the market size comes out. If the current prices are maintained then unless we all watch 10x as many movies the market will shrink. I don’t think there are enough hours in the day for that. If we all watch twice as many movies the implication is that the market will contract by a scary ~80%.