Screen Digest projects that online revenue for movie downloads in the United States and Western Europe will reach about $1.3 billion in 2011. Of that figure, $720 million will be generated in the U.s. and $572 million in Western Europe.
Most of the revenue generated in 2011 will be garnered by the studios and content owners, with $530 million in the US and $405 million in Western Europe. That means those providing services and solutions will fight over the remaining small piece of the pie.
With that in mind, service providers for movie downloads would suffer low margins or losses. It looks like only those that have strong hardware bases will be able to handle the cost of the service and be likely to succeed, companies like Sony (SNE), Apple (AAPL) and Microsoft (MSFT).
The report confirms consumers do want to view downloaded films on their TVs. The problem is the adoption on various devices is more incremental than immediate. It may take well past even 2011 before the practice becomes a part of the mainstream.
Penetration of online digital movies will be about 3 percent of all movie home entertainment by 2011, according to Screen Digest. That is a lot smaller number than some of the expectations thought by industry observers. Even so, it's not an insignificant number, and will help create much needed new revenues to replace the declining DVD growth.
For the Hollywood studios, their approach has been different from studio to studio, and is resulting in a fragmented market. That's in contrast to the DVD, which was a single format agreed upon and resulted in similar business models.
All the studios have different ideas on the best way to distribute their movies, with some thinking about releasing their content all on the same day across all platforms. Others are looking at different release days depending on which delivery medium they use. This could slow down the growth of digital downloads in the overall industry.
Arash Amel, Screen Digest senior analyst and author of the report added, "How the Studios react is crucial. It's a delicate balancing act between maintaining their relationships with their highly important DVD customer base – the powerful retailers like Walmart and Tesco – whilst meeting growing consumer demand for immediate online downloads."
The bottom line seems to be that the future of movie downloads will be a big part of the consumer experience and a big moneymaker, but it's going to take a lot longer than originally expected. That means Hollywood will continue to struggle over a long period of time as DVD sales continue to plummet with nothing taking up the slack.
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