Apple is no more the leader in the U.S. online movie business, as Netflix has surpassed the Cupertino tech giant's iTunes services in 2011 to become the largest American online movie service in revenue terms, a recent report from market research firm IHS iSuppli has shown.
According to the report, the U.S. online movie business more than doubled in 2011, to collect $992 million, and the biggest surge came from Netflix, whose revenue soared to 44 percent during the same period, up from less than 1 percent in 2010.
Coming down to second place, Apple's share of revenue declined to 32.3 percent last year, down from 60.8 percent in 2010, despite seeing strong revenue growth.
2011 marked a sea change in the online movies business that saw the balance of consumer spending shift from a DVD-like transactional model to more TV-like subscription approach, said Dan Cryan, research director for digital media at IHS. The online movie business more than doubled in 2011 to reach $992 million, and it is expected to double this year, as well.
The report stated that Americans were showing less interest in owning the copies of movies. Instead, they were opting to rent for a single time or have a subscription for viewing on demand.
In the U.S., revenue from subscription video-on-demand services, which give consumers access to movies in return for a regular recurring fee, reached $454 million in 2011, growing by more than 10,000 percent from $4.3 million in 2010. Thus, SVOD became the largest segment of the U.S. online movie business in 2011.
According to the report, this change can be attributed to two factors: Netflix's decision to start charging directly for online access, and the major growth in the number of people using online SVOD.
We are in the midst of a significant change in the way people pay to consume movies online, Cryan said. All the significant growth in revenue in the U.S. online movie business in 2011 was generated by rental business models, which provide temporary access, not permanent ownership.
The report said that Netflix and Apple had one thing in common -- both of them are focused on the hardware side of the business. Netflix is available on a very wide range of connected devices, while iTunes can take advantage of Apple's soaring device sales growth.
Netflix rules the subscription market, with its closest competitor, Hulu, less than 10 percent of its size.
Apple's iTunes still continues to dominate the transactional segment, accounting for 63 percent of revenue in this area. Walmart's Vudu captured 8.2 percent of the growing transactional market, up from 2.8 percent last year.