Online Movie Download Sales To Grow

By Richard Menta 9/26/04

Marketing research firm The NPD Group has just released research that focuses on the habits of those who purchase digital movies online. It's only a small group presently, not a lot of people have embraced paid digital movie downloads yet. Of course, not a lot of people embraced pay digital music downloads until Apple appeared on the scene and made it compelling. NPD Group does not venture into the quality of services, an important piece to the puzzle which, as iTunes proved, is critical to popularity.

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As we have not reviewed any of these sites ourselves we can't either. What we do know is that the early pay music download market floundered pre-iTunes so there may very well be a significant upswing potential with the online movie market, that like the music market, needs just a little innovation to propel it.

NPD Group measured consumer activity for the first 6 months of 2004. The activity at present is modest with paid movie downloads accounting for just 0.3% of video units that were purchased or rented. MovieLink accounted for 33% of all sales followed by MovieFlix with 13%.

The demographics are interesting in that they mirror in many ways the demographics of the early paid music download sites. NPD Group found that 80% of users are males and that one out of four between are between the ages of 18 and 24. Half of download renter are presently under age 35 and 80% are under age 45.

These ages are notable in that they are slightly younger than the sweet spot for those who purchase digital media devices, which is the 25 to 35 year old group. Presently, these services do not allow movies to be played on portable devices, but the recent introduction of Windows Media Center products with their DRM capabilities is expected to push these vendors into offering that as an option.

"Looking at digital movie rentals so far this year, we're encountering definite echoes of early consumer patterns seen in the music industry," stated the president of NPD Music and Movies Russ Crupnick in the company press release. "When digital music first became popular, the overwhelming majority of consumers were male; however, over time increasing numbers of women began acquiring digital music. Now that digital music has become more mainstream, women are responsible for purchasing nearly half of paid music downloads. We can expect to see a similar rise among women in the digital movie rental market."

Another trait NPD found among these users is that they are heavy movie renters and buyers, showing that online movie downloads do not canabalize these other markets. This is an interesting point because these markets, including the DVD rental/purchase markets, have had double digit growth during the era of free movie file trading. As this group most likely mirrors the demographics of those who trade movie files for free on the P2P services like eDonkey, could it be possible that file traders also are also heavy consumers of traditional paid media? An interesting statistic that begs measuring.

As for the movies that were rented, science fiction titles lead the pack. The most popular movie on these services was Independence Day, followed closely by Matrix Revolutions, Matchstick Men, Harry Potter and the Sorcerers Stone, and Star Trek Wrath of Khan.

I found it curious that the movies that top the list are not all that recent, in fact almost all have appeared on free broadcast TV already. MovieLink does offer relatively recent movies like Kill Bill 2 and Hellboy, yet neither of these appeared in the top six listed. The more recent movies cost more, about $4.99 (which is two dollars more than I can rent them at my local video store for), so that may account for this. If so, this suggests that the services have priced newer releases a little too high, a key point since the research has identified this user base as heavy consumers of other varieties of media distribution.

Price does make a difference. The first music services run by the record industry were expensive and the terms of purchase were overly restrictive. For example Sony's first service in 2000 charged $3.50 per track (so a 13 track CD equivalent of mixed tunes cost an egregious $45.50). Restrictions were, well, pretty restrictive. Like these online movie services, you could not play these songs on a digital media portable.

A drop in prices for the latest releases would proabably increase activity dramatically. Allowing the content to go mobile would open up a new audience of users increasing sales further.

Heck, if Apple came out with an iMove service to complement iTunes their name and reputation alone would cause a spike in usage. Especially if the elusive iPod video player should ever become an actual product and not just a rumor.

NPD Group's metrics are a good staring point to compare how the movie and music industries handle the Internet as a new distribution medium. The music industry has done a poor job of it and the movie moguls seems sincere in not repeating the same mistakes. It doesn't mean they won't, but MovieLink alone is proof they are not content with sitting on their hands while their lawyers fight for favorable court decisions.

The music industry closed Napster and their success backfired in the form of Grokster, KaZaa, Gnutella, Morpheus, eDonkey, Bittorrent, ad glorium, ad nauseum. Many of these services trade flicks too, but trading two hour films at the present bandwidth is a bit more of a chore than trading 4 minute songs. For three bucks I can rent, view, and return a movie before I can download it from most free P2P services. If the paid movie sites can do a much better job of delivery (and the opportunity is there) they can grab competitive advantage and succeed - assuming the price is right.

You can go to the NPD Groups website for more information





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