Analyst: 'Selling Digital Movies Has Been a Failure'

The product is overpriced considering that usage rights are limited, expert argues.

Despite revenue gains of 16 percent last year, electronic sell-through is a bust, BTIG Research analyst Richard Greenfield said Tuesday.

Commonly referred to as EST -- whereby movies and TV shows are sold to consumers as digital downloads over the Internet -- the product has several flaws. For one, Greenfield said, it's overpriced considering that usage rights are limited, especially when it comes to content shown on HBO.

Therefore, while Hollywood should expect VOD and digital VOD (known as iVOD) to thrive, "selling digital movies has been a failure," Greenfield wrote.

The analyst bases his opinion on a report this month from the Digital Entertainment Group indicating that while EST enjoyed a 16 percent revenue rise in the U.S. to $683 million in 2010, it actually fell 8 percent in the fourth quarter.

"The most shocking aspect" of the DEG numbers, Greenfield said, is that after the first three quarters, EST was up 37%, though it ended the year up only 16% because of those devastating final three months.

In comparison, VOD and iVOD were strong all year, finishing 2010 up 21 percent to $1.8 billion. The data, says the analyst, suggests that consumers have lost interest in purchasing movies and TV shows digitally but that they like the idea of renting them digitally.

With EST, "The studios are trying to force something to occur that makes no sense for the consumer," Greenfield said.

"Rental has become so convenient there is simply no need to purchase content anymore," he added. "It takes the same number of clicks to buy content as it does to rent it."