NPD Group: Electronic sell-through has slow growth

Only 1.3 million households have purchased digital video

By Susanne Ault -- Video Business, 10/5/2007

OCT. 5 | Despite the hype surrounding digital video, permanent downloads (a.k.a. electronic sell-through) have been slow to catch on—just 1.3 million households, representing 2% of Internet users in the U.S., purchased electronic sell-through products early in 2007, according to NPD Group.

But film downloading sites including Starz Vongo and CinemaNow are moving to boost their individual services and the overall digital delivery business with hardware deals and other marketing tactics.

ITunes is the dominant supplier of digital video, holding a 91% share of the overall market for electronic sell-through, largely due to its 99% share of paid TV show downloads, according to NPD statistics measuring the third and fourth quarters of 2006 and first quarter of 2007. ITune’s market share in electronic sell-through of movies at the time was 42%, with most of the rest of the market split amongst Vongo (21%), Movielink (15%) and CinemaNow (15%). NPD’s research did not include streaming such as Netflix’s ‘Watch Now’ feature, or Amazon Unbox, which launched in September of last year. NPD used consumer polling to determine the number of instances movie files were downloaded onto hard drives from each of these services.

Although iTunes holds a comfortable lead in digital video, when digital and physical video are rolled together, iTunes accounts for just about 1% of movie and TV show sales, according to NPD. Retailers of prerecorded DVDs dominate, led by Wal-Mart, which holds a 30% to 40% share, followed by Best Buy, Target, mail-order club Columbia House, Blockbuster, Amazon.com and Circuit City.

In contrast, iTunes commands third place in all music sales, behind Wal-Mart and Best Buy, with an approximate 10% share, illustrating its potential in digital video.

Digital film companies need to significantly boost awareness about the value of their services, because they lack the same obvious advantages, such as the ability to buy singles, that are attached to digital music delivery, according to NPD.

NPD VP and senior entertainment analyst Russ Crupnick said digital film companies “need to integrate themselves more into the way people watch content,” because currently so many enjoy home entertainment through traditional means. About 65% of people will buy at least one DVD in a year.

People also continue to treat Internet-based content and their TV as entirely separate entertainment zones. In contrast, people have long been conditioned to listen to music on portable gadgets, paving the way for the embrace of the iPod/iTunes offering.

“Virtually everyone on the Internet says they watch TV every single day,” said Crupnick. “But they are watching the [longer form content] on the TV. There is a big chasm between the [computer] and TV.”

“What iTunes has proven is that you need software married up to the hardware offering,” said Curt Marvis, CEO of CinemaNow. “We are going to be getting CinemaNow out more in front of an audience, by aligning our product with various manufacturers.”

Launching this month at retail, the new Hewlett-Packard MediaSmart TV comes loaded with the CinemaNow online service. Viewers can automatically purchase and watch films from their coach with this Web-enabled TV set.

Also, Cinema Now is part of the new line of Archos portable wireless video players, where people similarly can immediately view films from the handheld device. The CinemaNow software feature is expected to be demo’ed within players at many Best Buy stores.

Vongo soon will be announcing it will be included in several broadband provider packages as well as within various portable devices. Since earlier this summer, a free Vongo trial offer is loaded on all Toshiba notebooks. H-P and Compaq notebooks have come fully loaded with Vongo since last year.

“You won’t see us doing the type of marketing that Apple does, but we’ll partner with companies that have traffic,” said Bob Greene, executive VP of advanced services for Starz Entertainment.

Vongo also believes that its $9.99 monthly subscription plan, with which users get unlimited downloads on up to three different devices, is attracting a good share of fans. Currently, the average $9.99 Vongo subscriber downloads 10 to 12 movies a month.