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DVD Downside Transitions to Online Video Upside

American home video retail revenue has fallen consistently over the past five years, according to the latest market study by In-Stat. Moreover, double-digit declines in annual retail sales of DVDs are expected, resulting in a total reduction of $4.6 billion from 2009 to 2014.

Clearly, the U.S. home video entertainment market is in a transition. The progressive media content producers will adapt to the shift in consumer demand. This is now the accepted market reality.

Meanwhile, to replace retail DVD revenue losses, the online digital paid video download and streaming segment -- which includes both purchase and rental -- is expected to show high revenue growth.

Annual revenue of video streaming and download is forecast to grow from $2.3 billion to $6.3 billion within five years, says In-Stat.

The battle lines for online offerings are continuing to be drawn and are intensely competitive. Online à la carte rental of TV episodes will directly compete with online subscription TV services, such as Hulu Plus and Netflix, and may limit the use of incumbent service provider TV Everywhere services.

Further competition will now originate from paid online video stores, such as Apple iTunes, Amazon, Vudu and CinemaNow.

“Video disc rentals will continue their significant decline,” says Keith Nissen, Principal Analyst at In-Stat. "Netflix is already shifting its focus to online streaming, and Red Box is evaluating a similar strategy."

The convenience and utility of the online offerings are simply too compelling. Online rentals permit the selection of any movie or TV program from the Video-on-Demand library. In-Stat believes that, it will be very difficult for physical disc kiosks to compete with the in-home or in-store download-to-rent business model.

In-Stat's latest market study findings include:

- U.S. TV download revenue will more than triple between 2010 and 2014.

- Premium channels (HBO, Showtime, etc.) are in competition with online video subscription services for both subscriber spending, as well as movie licensing rights.

- The emergence of electronic sell-through for online video purchases and rentals will transform the digital entertainment industry over the next five years.

- Online VOD (Video-on-Demand) subscription revenue is expected to approach $3.5 billion by 2014.

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