This is an interesting piece from Variety. Somewhat surprising to me too with all the competition Out There. But also a bit scary to see the real numbers... AND to see how strong DVD sales still really are (although declining, but still far bigger than digital downloads).

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iTunes dominates digital movie sales
Apple gains market share despite increased competition
By ANDREW WALLENSTEIN

Apple's iTunes reasserted itself as the top seller of movies in the U.S. on digital platforms in the first half of the year, according to new research from IHS Screen Digest.
Even as more aggressive competitors pour into the space, iTunes ticked up after two consecutive years of declines. Apple commanded 65.8% of spending in the category, up from 64.9% in the first half of 2010.

Though also-ran services from Microsoft and Sony registered declines over the same period, Walmart's Vudu service also posted a gain on the strength of increased visibility from the retail giant's stores to a new iPad app.

That there's any growth at all in this category, which IHS focuses on digital services that handle streaming-rental or download-purchase transactions of the a la carte variety, is somewhat surprising given that the monthly subscription model epitomized by Netflix has captivated the industry.

An NPD Group study in February found that 61% of video streaming and downloading on the Internet in the U.S. belonged to Netflix, which doesn't even allow downloading. Apple was a distant third in a three-way tie with DirecTV and Time Warner Cable, all with 4%. Comcast finished second with 8%.

But even as its overall share of the digital-movie marketplace falls behind the dominant but declining DVD, surging Internet subscription VOD and cable/satellite VOD, a la carte entrants like iTunes and Vudu are finding there's still room to grow. Getting theatrical product day and date with homevideo release and positive user experiences may be key reasons why.

Though iTunes' .09% increase may not seem much, it's significant given Apple's market share dropped nearly 12 percentage points in the first half of 2010 vs. the same period in 2009.

IHS attributed iTunes' renewed dominance to a variety of factors, including the increasing popularity of the iPad and AirPlay, which connects iTunes with TVs.

Remaining a distant second is Microsoft's Zune Video Marketplace, which fell from a 18.5% share in 2010 to 16.2% in 2011. Jumping two places to No. 3 is Vudu, which showed the year-to-year gain, moving from 1% to 5.4%.

Walmart has been aggressive in its deployment of Vudu since acquiring it 19 months ago, broadening its footprint across connected devices and expanding its presence on the Web via its own website and Walmart.com.

Falling out of the third spot was Sony's PlayStation Store, which dropped from 8.2% to 4.4%. IHS chalked up the decline to both Vudu's growth and the hacking that disrupted Sony's service worldwide during that period.

Amazon sunk to fifth, having remained relatively flat at 4.2%. That number could potentially sink further as the company shifts gears from an a la carte offering to monthly subscription service Amazon Prime.

Some big names in this space that haven't made the list yet are Facebook and YouTube, which both introduced a la carte options earlier this year. There are still plenty more market entrants just beginning to get their feet wet in this space that have yet to amass marketshare, including Blockbuster, Best Buy and Sears.

One would-be entrant that still hasn't made up its mind as to how exactly to enter the market is Redbox, which has indicated a willingness to go digital but hasn't yet specified a gameplan. It could opt to go the SVOD route like Netflix, but its kiosk business has already accustomed its massive customer base to an a la carte model.

The figures take into account both rental (Internet VOD) and purchase (electronic sell through). IHS projects EST will deliver revenues of $247 million in 2011 versus $240 million for 2011. Combined, that $487 million will put the digital a la carte market for movies well ahead of its 2010 tally of $385 million.

While both sides of the digital business represented relatively even spending levels in the first half of 2011, IHS projects that iVOD will likely eclipse EST going forward as the rental model seems to have much more momentum in the digital marketplace. Regardless, both EST and iVOD together are still just a fraction of spending on DVDs, which may be in decline but are still dominant.

U.S. spending on discs in the first half of 2011 amounted to $3.87 billion, down 18.3%, according to the Digital Entertainment Group.

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Definitely something to think about as an indie filmmaker too. Should you do a digital distro strategy only or still do a DVD release too?

-Blake

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