Internet-Enabled TVs Threaten DVDs, Physical Formats

The anticipated growth of internet-enabled TVs in the next four years would likely increase the popularity of digitally downloaded movies, TV shows and video games while dampening sales related to DVDs, blu-ray discs, video game discs, and other physical content formats, according to Retailer Daily.

While internet-enabled TVs are only expected to account for about 3% of TV sales this year, research firm Parks Associates estimates that they will represent 24% of TV sales by 2013. Companies including LG, Panasonic, Samsung, Sony and Toshiba now or reportedly plan to offer internet-enabled TVs, at a starting price point of around $1,500 USD.

The growth of internet-enabled TVs would particularly threaten retailers such as Blockbuster (BBI) and GameStop (GME), which base most of their profits on sales of products related to physically-formatted digital entertainment content. Blockbuster makes movies available for download through its OnDemand service and has partnered with TiVo (TIVO) and Samsung (SSNLF.PK) to make OnDemand available through their playback devices. The retailer is also considering offering digital content downloads through its Blockbuster Express kiosks in the future.

GameStop has publicly stated it does not see downloaded video games as a threat to in-store sales until 2014, and even then GameStop research suggests the cost of downloading games may be too high for most consumers. The retailer currently offers online downloads of video games.

Netflix (NFLX) and Amazon (AMZN), which do not rely on physical stores for their sales of digital entertainment content, have taken more active steps in the digital download market and should benefit from an expanded internet-enabled TV market. In March 2009, Netflix publicly announced it would increase focus on its digital content streaming service. The retailer does not break out streaming growth statistics but said the category was “gaining momentum.” Netflix has been expanding its library of online titles and enabling an increasing number of playback devices to accept its streaming content.

Amazon launched an online casual gaming portal in February 2009. In April 2009, Amazon added HD shows and movies through its Amazon Video On Demand service. Netflix and Blockbuster both offer digitally streamed HD content, as well.

A possible wild card in the impact internet-enabled TVs could have on retail is the explosive growth of free content streaming services, such as Hulu and YouTube. As reported by Marketing Vox, Nielsen Online data [pdf] indicates that Hulu has increased total year-over-year streams by 490%. In April 2008, Hulu had 63.2 million streams, compared to 373.3 million streams in April 2009. This places Hulu at number two among U.S. video web brands, and the fastest-growing brand in the top 10. YouTube comfortably maintained the top spot in April 2009 with 5.5 billion streams.

Hulu, which offers full-length, ad-supported streaming video of TV episodes and movies, is a more direct competitive threat to content streaming retailers than YouTube, which offers video snippets of up to 10 minutes in length and restricts the posting of copyrighted material. Hulu provides video in flash format and also offers some content in HD format. In addition to viewing Hulu online, users can view it on standard TV with MediaMall PlayOn software and playing device such as Playstation 3 or Xbox 360 console. However, unlike paid streaming content from retailers, Hulu’s content is only available for viewing, rather than download. In addition, Hulu’s movie catalog is relatively small, with about 500 films, and free Hulu content includes ads, unlike paid content.

The apparent reluctance of U.S. consumers to purchase blu-ray players may signal they are waiting to see what happens with direct download of entertainment content before committing to a new physical format. Growth of blu-ray sales during the first five years of the format’s availability significantly lag the growth of DVD sales during the first five years of the DVD format.

DVD players were introduced to the U.S. market in 1997 and blu-ray players were introduced to the U.S. market in 2003. Using 2008, the last year with complete blu-ray sales figures, as a comparison point, the year 2002 corresponds to the point DVD players had been on the market for the same amount of time, five years.

Blu-Ray vs. DVD

According to the Consumer Electronics Association, in 2002, 43 million DVD players had been sold in the U.S. In 2008, Adams Media Research estimates that 3.1 million blu-ray players had been sold in the U.S. Even adding in sales of blu-ray-compatible Sony (SNE) Playstation 3 consoles, which Adams Media Research estimates totaled 6.1 million units by the end of 2008, and there is clearly a huge discrepancy in adoption rates. Factor in sales of the DVD-compatible Playstation 2 console, which the BBC estimates totaled 50 million units worldwide by the end of 2002, with most sales in North America, and the discrepancy becomes far more severe.

According to USA Weekend, several major TV manufacturers already have or will soon have internet-enabled TVs on the market.

Comments

[kmi:]

Not just TVs but Windows Media center (especially on Windows 7) is making TV on a home computer much more common. See also software frontends like Boxee which seamlessly integrate with sites like hulu.

Personally I was betting physical formats would trend away from the CD/DVD/BD disks and switch to SD/SDHC type media cards, but if you ask me today I'd suggest -all- physical formats are going the way of Betamax.

Online storage and apps will eventually be more ubiquitous than physical formats and software, for all media.

Aug 26 08:19 AM

[casey00001:]

You are missing a key player Redbox. The ability to go to a local kiosks and get a movie for a buck. They are at McDonalds, Walgreens, Walmarts among other locations. They could easily switch to downloadable format where you insert your own USB. I am not going to rely on Microsoft nor my Internet provider for telling me what I can watch and when (including advertisements). Both microsoft and internet service providers will hose me every chance they get.

Aug 26 09:03 AM

[rrtzmd:]

...I haven't bought OR rented a DVD in probably 2 years or more...I can download and burn practically any movie within a few weeks of its release...

Aug 26 02:07 PM

[jack dee:]

The real reason people are not flocking to buy High def DVD players, is that most just dont care, they are happy with DVDs and will move when and if they feel like it.


The display device is just that , a display device sure more imputs , wifi , etc great b

I think most would rather have a box to handle the rest, a platform that removes most if not all of the boxes from the living room. cheap easy to use easy to upgrade , buy, sell, give away wintel box with MSFT Mediacenter at its heart.....

Aug 26 03:09 PM

[CGP:]

A lot of this comes down to price vs. quality. Obviously DVD's are still good enough quality for a lot of people, so they won't pay up and many downloaders are not paying anything. Note the new PS3 and it's buy one get the other free program (as well as the original PS3).

As far as 1080p content, bandwidth is an issue; Blu-Ray is the best delivery vehicle for now - only the high end really cares though.

Convenience is another issue, although it might make sense to load purchases onto a SDHC card, most impulse purchasers won't be carrying one around.

Aug 26 04:52 PM

[jkk:]

no no no - redbox makes money from first sale doctrine -re-rent the same disc - for digital files, they have to pay for EVERY single download - this kills the redbox, netflix business model

On Aug 26 09:03 AM casey00001 wrote:

> You are missing a key player Redbox. The ability to go to a local
> kiosks and get a movie for a buck. They are at McDonalds, Walgreens,
> Walmarts among other locations. They could easily switch to downloadable
> format where you insert your own USB. I am not going to rely on Microsoft
> nor my Internet provider for telling me what I can watch and when
> (including advertisements). Both microsoft and internet service providers
> will hose me every chance they get.

Aug 26 06:17 PM

[Jackafuss:]

Last week's $10 per month price drop, by Clear Wire, is the first of several reductions in download prices. Disruptive technology is always too expensive for the masses in the early years of adoption. Consumers are starting to appreciate the option to avoid extra fees for text messaging. Mobile communications are increasingly set-up to find the low cost WiFi option first. In the past, the cost of time and money to a store to make a purchase was not viewed as a cost because it was a necessary act. The convenience factor is much more highly valued once the savings is experienced. In one way or another, the price of downloading is falling. Lower price--higher volume is an economic fundamental.

Aug 26 11:25 PM

[JW.USC:]

Oh, so you're a thief? Nice.


On Aug 26 02:07 PM rrtzmd wrote:

> ...I haven't bought OR rented a DVD in probably 2 years or more...I
> can download and burn practically any movie within a few weeks of
> its release...

Nov 09 05:02 PM