The window of opportunity for pay-TV service providers to secure control of the market for video-on-demand (VOD) rentals is closing, according to an NPD report. Pay-TV providers already effectively control the VOD market, but competition for a-la-carte, over-the-top (OTT) providers’ market share and overlap is expected to continue growing, threatening pay-TV providers’ VOD revenue streams.
VOD revenue for pay-TV providers’ reached $1.3 billion in 2011, while the emerging market for Internet VOD (iVOD) movies reached $204 million, and that’s growing quickly, according to NPD’s VideoWatch VOD tracking service.
Fifteen percent of US consumers ages 13 and up used pay-TV VOD movie services from a cable, satellite or fiber-optic provider in the 12 months to August, 2011, which translates to 40 million users.
Users see iVOD movie rentals as a better value than pay-TV VOD, according to NPD. Including iVOD offerings from Netflix, iTunes, Amazon, Vudu and others, the iVOD distribution channel has already reached 7 million users. One of every six–16%–VOD movie rentals paid for in 2011 were attributed to iVOD, according to NPD, indicative of a substantial overlap of consumers who use both distribution channels.
“The challenge for pay-TV operators is that there is significant overlap between iVOD and pay-TV VOD movie usage,” according to Russ Crupnick, The NPD Group senior vice president for industry analysis. “This overlap is expected to expand — possibly cutting deeply into pay-TV VOD movie revenues — as growth in consumers’ use of Apple’s iTunes, Vudu, and other services expands to new connected devices in the home, and as iVOD interfaces become easier to use.”
The key to doing so lies in the ability of pay-TV service providers to build on their existing customer relationships, NPD says. “With consumers being exposed to more paid on-demand viewing options, pay-TV operators still have a window of opportunity to take advantage of their relationship with customers,” Crupnick commented. “The home TV is by far the leading way consumers pay for movies via VOD and pay-TV companies currently control both the billing relationships and the remote controls associated with those TVs.”
