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Netflix is bigger than Apple – Official (At least when it comes to online movies)

Move over, Apple: There’s a new sheriff in OnlineMovieVille. According to a new report by research company IHS iSuppli Market Intelligence, the Cupertino-based company was overtaken as the largest US online movie service for the first time last year, with its dollar market share dropping dramatically in the face of increased competition from Netflix.

The IHS report revealed that Netflix’s market share soared last year from 2010’s 0.5 percent to 44 percent, with Apple’s share tumbling to 32.3 percent from the previous year’s 60.8 percent (That continues a drop from the year before; in 2009, Apple represented 71.5 percent of revenue in terms of online movies; Netflix, by comparison, had 0.0 percent in the same year).

Unexpectedly, Apple’s marketshare drop came despite the company actually seeing an increase in revenue from movies. The reason for the seeming contradiction? The audience was changing the way it viewed movies online – and in the process, changing the way it paid for them, too. “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,” explained research director for digital media at IHS Dan Cryan. “The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.”

2011 US spending on subscription video on demand services – the Netflix model, where customers pay a recurring fee in exchange for access to streaming content – reached $454 million, an amazing 10,000 percent increase from where it was in 2012 ($4.3 million) and enough to easily overtake transactional video on demand or content purchased and downloaded (Transactional VOD also saw an impressive growth last year, up 75 percent from its 2010 total to hit $273 million. Sell-through content grew “just 2.4 percent,” the report added, to reach $236 million).

This isn’t good news for studios, which tend to make greater profits from electronic sell-through downloads. “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,” said Cryan. “Rental delivers unlimited consumption with a low monthly fee for older titles as well as cheap rentals of new releases, providing the kind of value that online consumers want. In contrast, EST, which is much more profitable for studios on a per-transaction basis, is stuck in the doldrums.”

The report, however, will be seen as a boon for Netflix, which had a rocky 2011 in which it lost subscribers after changing its pricing structure, announced a separation of streaming and DVD businesses that it then backtracked on after customer outcry and saw its stock price collapse as investors lost faith in the company. The company has already started to see former subscribers come back in recent months; perhaps a greater renaissance awaits.

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