When Facebook announced a deal with Warner Bros. to stream movies last Tuesday, Netflix stock took an immediate hit. Indeed, the news set the stage for an eventual showdown between the two digital companies.
But don't count Netflix out yet. Facebook faces an uphill battle to dethrone the streaming-movie service. According to a recent review by NPD group of the U.S. home video market, Netflix's share of digital-movie units -- downloaded or streamed -- reached 61 percent between January 2011 and February 2011.
Facebook is not even in that equation. Of course, Facebook is just entering the picture. NPD Group cites Netflix's largest competitors right now as Comcast, DIRECTV, Time Warner Cable, and Apple. Comcast has eight percent of the market, while DIRECTV, Time Warner, and Apple are in a three-way tie for third at four percent.
Room for All?
But it appears there may be room for Facebook, whether the social-media giant eventually dominates the scene as some predict or not. Indeed, based on information from NPD's new VideoWatch Digital tracking service, digital video now makes up one-quarter of all home video volume. That figure is expected to grow in the years ahead.
"Sales of DVDs and Blu-ray Discs still drive most home-video revenue, but VOD and other digital options are now beginning to make inroads with consumers," said Russ Crupnick, entertainment industry analyst for NPD. "Overwhelmingly, digital-movie buyers do not believe physical discs are out of fashion, but their digital transactions were motivated by the immediate access and ease of acquisition provided by streaming and downloading digital-video files."
NPD also compared consumer-reported satisfaction with four modes of digital-video acquisition: Electronic sell-through, Internet VOD, cable VOD, and subscription streaming. NPD reported that consumers clearly recognize that electronic sell-through services like iTunes have the most "current releases available," while Netflix streaming gets credit for providing the best "overall shopping experience" and "value for price paid."
What About Hulu?
Given the exceptionally low price point for these video-streaming services, it's likely that consumers will maintain as many as three contracts for some time to maximize the number of available titles, said Brad Shimmin, an analyst at Current Analysis.
"Even the most established of players has either blind spots or areas in which it excels within its catalog, be it new releases, classics, independent or other special-interest films. Over time, though, I would expect customers to settle on one primary and one secondary provider, depending upon their stated areas of interest, Hulu for TV and Netflix for a deep catalog, for instance," Shimmin said. "Library aside, the other factor that will decide the long-term success of a video-streaming service will be its reach. Is it available on all Blu-Ray players, Xbox machines, etc.? From that perspective, service providers themselves should hold an edge, but those players have been very slow off the block in terms of providing both a large library of titles and a flat cost structure."
Left out of the NPD report was Amazon.com. Movies and TV shows that are now included with an Amazon Prime membership can be watched instantly on a variety of devices compatible with Amazon Instant Video. Although Amazon is currently only making 5,000 of its 90,000-title Amazon Instant Video catalog available to Prime customers, its sheer library and brand name make Amazon a contender.
Hulu wasn't mentioned in NPD's report, either. Hulu is making strong competitive moves against Netflix with its Hulu Plus service. Hulu Plus offers one of the largest online catalogs of current TV shows available for streaming, including every episode of more than 45 hit programs.