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Why UltraViolet Won't Halt the Netflix Phenomenon

It's already apparent to most video entertainment industry analysts -- fewer people are interested in owning physical media and the recent results of DVD and Blu-ray disc sales in mature markets is a leading indicator of this growing trend. Other key trends are also emerging.

Netflix helped boost subscription services to nearly 40 percent of the UK over-the-top (OTT) video entertainment market. The worldwide OTT video market reached nearly $11 billion in 2013, of which Netflix is also a significant contributor in the North American and expanding Latin American markets.

According to the latest market study by ABI Research, OTT revenue share will shift to TVOD (transactional video on demand) and advertising as new video entertainment services emerge.

Part of the driving force for TVOD, and more specifically EST (electronic sell-through), is going to be propelled by the eventual increased adoption of UltraViolet -- which today has an uncertain future.

"While we still believe UltraViolet can succeed in moving consumers to pure electronic libraries, from our conversations it is clear others are far more pessimistic. UltraViolet continues to experience some growing pains as the fragmented market prevents some of the key benefits UltraViolet touts," said Michael Inouye, senior analyst at ABI Research.

However, according to ABI's assessment, it still remains the most comprehensive solution to date. That being said, if UltraViolet fails to replace physical media this would undoubtedly impact the outlook for EST.

ABI Research expects EST to grow, but rentals will capture a significant portion of the transactional OTT market. This forecast speaks more to the impact of subscription and advertising based services than the prospects for UltraViolet as an EST platform.

The pace of change within the video market has been remarkable. The next wave of disruptive services will be national OTT services from existing pay-TV market participants -- as indicated by Verizon’s acquisition of Intel Media and Sony’s cloud TV hopes.

As more digital content becomes available, people's perceptions of ownership will change – instead of moving from physical media to electronic purchases (EST), video is looking increasingly like music consumption, where people access owned and subscribed libraries of content via online services.

Therefore, I believe that the odds are very much against the likelihood that UltraViolet can counter the Netflix phenomenon. Also, the biggest flaw in UltraViolet execution is the requirement to make people pay again to stream video content that they've already purchased -- the proof-of-purchase issue is the showstopper.

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