Study: Movie download biz $1.3 bil by 2011

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LONDON -- Movie downloads in the U.S and Western Europe are predicted to be worth $1.3 billion in 2011, according to a new report from researchers Screen Digest.

In "Online Movie Strategies: Competitive Review and Market Outlook," Screen Digest has predicted that, in 2011, film downloads will generate $720 million of revenue in the U.S. and $572 million in Western Europe.

It also stated that the majority of the money will flow directly into the coffers of the studios and content owners -- at $530 million in the U.S. and $405 million in Western Europe -- meaning that service and solutions providers will have to scramble for the remaining share.

"Analysis reveals that the studio wholesale price on movie downloads to service providers ranges from 70% to 105% of consumer price on the latest new film releases," Screen Digest said.

"As such, for service providers, movie downloads will become a low-margin and potentially loss-making endeavor, and only those service providers who have a strong hardware proposition and are able to absorb the cost, such as Apple, Microsoft or Sony, are likely to succeed."

But, Screen Digest senior analyst Arash Amel warned that there are a couple of potential hindrances to the development of the download market. First is the need for a wider rollout of devices that connect the download to the television set.

"It is becoming increasingly apparent that people want to watch films they've downloaded on their large screen TVs and home entertainment systems," he said. "To do that, they need a new device, such as an Apple TV, an Xbox, a PS3 or a plain old media extender, which can link their broadband connection to the TV set.

"At present, there simply isn't adequate penetration of these devices -- and the idea that people will en masse watch a two or three-hour movie on the PC just isn't realistic. It will take time to reach a wider market penetration with these new devices, and we believe that this will start to become more mainstream beyond 2011."

Amel also pointed to the disjointed way in which digital downloads have been implemented in the market. Some have adopted a "day and date" release strategy, while others have kept in staggered release windows.

"Unlike the introduction of the DVD, where the studios agreed on a single format and approximate business model, digital is being handled very differently," Amel said. "Every studio has its own view and approach to this new era, resulting in the development of a fragmented market, which will undoubtedly hinder the future development of digital."

The Screen Digest report argues that the online digital movies segment will make up 3% of all movie home entertainment revenues in the U.S. and Western Europe by 2011. This, it said, may be smaller than some observers were expecting, but is still a significant market and will bring much needed incremental revenue to the movie business as DVD growth falls away.

Much will depend on how the studios react when implementing downloads, Amel added.

"It's a delicate balancing act between maintaining their relationships with their highly important DVD customer base -- the powerful retailers like Wal-Mart and Tesco -- whilst meeting growing consumer demand for immediate online downloads," he said.
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