James R | On 02, Mar 2016

Much has been written about the future of cinema in a Netflix age, despite day-and-date releases proving that digital and theatrical releases are not cannibalistic to each other. New research, though, reveals that one area VOD has had a significant upon is physical media: according to a report by IHS Technology, sales of movies on disc have more than halved since the first SVOD services launched in 2008.

Netflix, as the flagship brand for video streaming, has the biggest clout; the report highlights a “clear correlation” between launch of Netflix and decline in video spending.

Before Netflix launched its streaming service in the USA in 2007, spending on buying and renting movies and TV series on disc was falling by an average of 1.2 per cent a year. Since 2010, the year in which Netflix access became ubiquitous across the US, spending has fallen by an average of 10.3 per cent a year.

“The data shows that Netflix’s entry into a market has a noticeable effect on consumer behaviour, even in countries where they already had access to other streaming video services,” says Helen Davis Jayalath, senior researcher at IHS Technology. “Movies and TV shows are not only the biggest draw for Netflix subscribers, they are also the backbone of the home entertainment industry, generating 80 percent to 90 percent of the business in most countries.”

In the UK, the pattern is the same: the steepest annual decline in DVD sales (14.5 per cent) occurred in 2012, the year Netflix launched. The downturn in sales and rentals of TV series, traditionally an important genre in the UK market, has been “even more significant”, says IHS. Not only have sales of box sets and other TV programmes on disc been falling by over 14 per cent a year since 2012, but rentals of TV shows are down by almost 75 per cent.

“The year before Netflix launched its streaming service in the USA, consumers spent $20.9 billion buying and renting movies and TV content, the most ever recorded,” Davis Jayalath says, “but by last year, total spending on these two key genres, including via transactional and subscription VOD services, was down by 17 percent to $17.3 billion.”

In the UK, Netflix’s arrival in 2012 was pre-empted by Amazon’s 2008 investment in (and subsequent acquisition of) local SVOD and DVD rental service LoveFilm, which was already taking its toll on physical video spending.

“British consumers have taken Netflix and SVOD to their hearts,” Davis Jayalath adds. “Last year, they spent £1.8 billion on buying and renting movies and TV content, more than 26 percent of which was generated by SVOD services.”

Despite this, total spending is still £82 million a year less than it was before Netflix launched and down over 20 per cent (£474 million) since Amazon’s investment in LoveFilm effectively kick-started SVOD in the UK.

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