Since the start of online video services there’s been a fear that online services will cannibalize packaged media (DVD and Blu-ray). This fear is one of the reasons studios have been restrictive with licensing content and also why some still have a release window between DVD, downloads and video on demand (VOD). Not licensing content is part of the plan “not making the same mistakes as the music industry”.

I like to bust myths. This day it’s time to kill the online-video-will-cannibalize-the-DVD-myth.

It’s true that the music industry made mistakes and was slow to react on customer demand, but what eventually killed the CD wasn’t legal music services - they were already too late - it was the mp3, Internet connections and consumer distribution that made the CD obsolete. And history is repeating - it’s happening with movies too. As I wrote in a previous post: “when broadband penetration reaches a certain level and speed, users will turn away from physical products and download/stream instead”.

For some time there’s been unofficial reports and studies claiming VOD and downloads would increase physical dvd sales instead of hurting - representatives from the big studios now confirm these claims.

Ron Sanders, president of Warner Home Video, said at PEVE in April that VOD buy rates went up 50% and DVD sales up 6% when they trialed 130 titles on a simultaneous VOD and DVD release.

Time Warner CFO John Martin recently confirmed these numbers and said VOD buy rates are up more than 50% while DVD sell-through is up 10% (Note: 6% in April). At the same time the VOD dollar unit contribution is 3.5 times better for the studios than in physical rentals. And digital sales, mainly on iTunes, see a 40% lift compared with the physical business, Martin said.

Martin also rejects that new technologies would train consumers not to buy but to rent content. “The wholesale percentage of rental versus sell-through remains constant” at about one-third versus two-thirds, he continues.

The reasons for the increased sales are primarily two (my thoughts):

  1. Having all your marketing efforts at the same time increases customer awareness of the products and builds a bigger interest (previously a DVD campaign was followed by a VOD campaign several months later). A bigger hype leads to more sales.
  2. The VOD experience is a marketing tool in itself. The lower price point and easy access means more people are interested to watch and if they think the movie is good enough will also buy the download or DVD. (This suggests that free viewing would increase DVD sales as well - unlimited access to free would decrease sales though).

With above numbers from Warner I think the cannibalize-myth is officially busted and clearly shows the current state of the online video market. Studios are definately doing the right thing when decreasing release windows and doing simultaneous releases. I encourage all distributors to look at Warner’s trials and learn from it.