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Netflix Success has Mobilized the Legacy Laggards

HDTVs are rapidly being enhanced with access to over-the-top (OTT) video services. Retailers, such as Best Buy, Walmart, and Sears-Kmart introduced online services and are actively promoting the new connected TV sets to compensate for the significant decline in DVD sales.

To counter these initiatives, legacy U.S. pay-TV service providers -- no longer in denial of the market shift -- have begun deploying hybrid set-top boxes (STBs) that support both broadcast and online video viewing -- without the need for smart consumer electronics (CE) devices.

Why Blocking and Tackling Isn't a Winning Strategy
TV content producers are attempting to block access to popular content -- in the hope that they can stall the inevitable market transition to on-demand viewing. "The boundaries between market segments are blurring," says Keith Nissen, Principal Analyst at In-Stat.

Today, manufacturers, retailers, service providers, and content producers are all reaching beyond their traditional business models -- driven by deep concerns about their long-term survival.

Why the panic? In a word -- Netflix.

Nissen adds "Just understanding devices or services is no longer adequate. You need to closely track and assess the new dynamics of the entire digital entertainment ecosystem."

To meet the changing needs of the industry, In-Stat has introduced a research service called the U.S. Digital Entertainment Tracker. The guidance will likely be well received, since senior executives at legacy companies are now mobilized in numerous "damage control" efforts -- intended to reduce the impact of Netflix subscriber growth.

For example, In-Stat's latest market analysis includes:

- The installed base of devices capable of supporting on-demand video will grow much faster than either the availability of online video content, or the adoption of OTT video services.

- Web-enabled TV shipments in the U.S. are increasing at a 94 percent annual growth rate.

- 45 percent of U.S. broadband households prefer to obtain at least some of their digital entertainment from online video services.

- 54 percent of American households would be more likely to purchase movies using a digital rights locker-based online video service.

- Yet, except for owning a few personal movie favorites, American consumers strongly favor acquiring their TV programs and movies from an on-demand subscription service -- such as Netflix.

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