U.S. spending on streaming video -- to watch movies and other paid services -- has exploded in the past few years and it looks poised to keep on growing.
Americans spent $2.83 billion for the service in 2011, nearly triple the $854 million they spent in 2010, according to a PwC report.
Part of that increase is due to a change in the way that PwC classifies Netflix's subscription revenues. Until 2010, it placed Netflix in its category for stores like Blockbuster -- the "physical rental market." Last year, PwC decided that because streaming video is an increasingly dominant part of Netflix's business model and the company now offers a streaming-only subscription model, half of Netflix's subscription revenue would be counted as "streaming" and half as "physical."
Still, the report might come as a relief and a surprise to those in Hollywood who remain dubious about the idea that people are willing to pay money to watch movies online. Services like Netflix and Hulu Plus already have millions of subscribers and are still growing -- a sort of challenge to the sort of movie industry executives who consider increasing digital distribution as merely "Trading Analog Dollars for Digital Pennies" (a chapter heading in Edward Jay Epstein's recent book "The Hollywood Economist").
And $2.83 billion is hardly pennies. PwC anticipates that Americans will spend more and more on streaming video going forward. If the accounting firm is right, Americans will fork out $6.68 billion on streaming movies by 2016, when the sector will comprise more than one-fifth of overall movie spending in the United States. To put that in perspective, streaming video represented just 1.5 percent of the American movie market as recently as 2008.
A Netflix representative agreed. "We’re convinced that streaming has the future and are bullish about its prospects, both here in the US and abroad," company representative Joris Evers told The Huffington Post in an email.
Evers pointed to an April 23 investor letter, in which Netflix said it had added 1.75 million new streaming-only subscribers to its rolls in the first quarter of 2012.
David Sidebottom, a senior consultant in digital media at Futuresource, told The Huffington Post that the future success of streaming video isn't just contingent on Netflix's role.
"We see an increasing amount of growth coming from new services," said Sidebottom of Futuresource, which provided PwC the data it used to make the forecasts. "It could be even Apple. We see there being alternatives to Netflix moving forward."
But Sidebottom said that anyone who wants to start a new streaming service will have to confront a major obstacle: the movie studios. Most of them have been reluctant to grant streaming services access to their film libraries, especially when it comes to new releases, for fear that doing so could cannibalize lucrative businesses like TV licensing.
As Epstein asked in his book, "Why should HBO pay $15 million for rights to an exclusive window for the latest Harry Potter movie when its viewers can download it from the Internet?"
And with this kind of deal making being the norm in the industry, it can cost a prospective streaming video provider a tremendous amount of money to compete. But until a provider has a tremendous amount of good content, no one's going to want to pay it much for a subscription. That's the great catch-22 of the digital transition.
Even if streaming video revenue does grow as rapidly as PwC says it will, it does not seem to be expanding as fast as the decline in consumer spending for renting or purchasing old-fashioned movie media for home use. Annual revenue from the physical home video market -- which includes DVD, VHS, Blu-Ray rentals -- is expected to be $10 billion smaller in 2016 than it was in 2007, according to PwC projections.
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