There are lots of ways to watch movies and TV at home, including DVD rentals, network TV or streaming shows to name just a few. DVDs and network TV are widely known, but Internet-enabled smart TVs, otherwise known as connected TVs, are gaining popularity.
In 2011, about 18 percent of households were connected and by next year, 34 percent may be, according to Jason Helfstein, managing director and Internet analyst at Oppenheimer.
This bodes well for streaming video company Netflix. Networks have been given a run for their money by Netflix’s original content, such as “House of Cards” and “Hemlock Grove.”
Netflix has been trying to expand its household footprint. Helfstein says Netflix had 21.7 million streaming subscribers in 2011 and that should almost double by 2014 to more than 40 million subscribers.
At the same time, Netflix is also battling with Coinstar for its core automated retail business which includes the Redbox self-service DVD and video game rental kiosks. Redbox has the hold on the DVD business for now. Revenues are rising, $1.5 million in 2011, and $2.1 million is expected for 2013, according to Oppenheimer.
So what happens to Netflix’s shrinking DVD business? Helfstein expects it to continuously add less to profits. In 2012, according to Oppenheimer, DVDs contributed $538 million in profits but in 2014 that will probably shrink to $326 million.
Helfstein says future growth will be driven by digital distribution via mobile and connected TVs. He also says the future will be between Hollywood and the digital providers, leaving the DVD business as a very small part of the way families entertain themselves.
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- Consumer Discretionary