Subscription Video Revenues Now Top Rentals

By Paul Ausick Updated Apr 28, 5:37AM EDT · Published Nov 6, 2:00PM EST

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While Taylor Swift and the major record labels still want music fans to buy overpriced CDs, their customers have pretty much moved on. In the related video entertainment field, for example, physical media rentals now trail digital subscription services as revenue generators.

In the third quarter of 2013, physical media rental revenues totaled $966 million, compared with $815 million in streaming subscription revenues. Physical media rental revenue declined 18% to $793 million in the third quarter of this year, while subscription streaming revenue totaled $1.03 billion, up 26% year-over-year.

Combined with a 9.5% decline in video-on-demand rentals, rental revenues overall fell 15% to $1.22 billion. Streaming and disc subscription services posted revenues of $1.23 billion. As the situation stands, digital revenues should pass physical sales sometime in 2016, according to nScreen Media.

Sales of physical media totaled $1.33 billion in the third quarter of 2014, down 8% year-over-year. Year to date sales, of physical media are also down 8% to about $4.6 billion. Including digital downloads (called electronic sell-through, or EST, in the industry), total sales fell 2.5% to $1.68 billion. The data was reported on Wednesday by the Digital Entertainment Group.

The direction that video entertainment is headed favors companies like Netflix Inc. (NASDAQ: NFLX) that offer both physical and digital streaming. Amazon.com Inc.’s (NASDAQ: AMZN) Prime Instant Video and Hulu Plus are other examples of where consumers are taking the market.

Outerwall Inc. (NASDAQ: OUTR) and its Redbox kiosks are not in a solid position going forward, although the company did post good earnings last week. The company’s streaming joint venture with Verizon Communications Inc. (NYSE: VZ) was cancelled last month.

Another long-term loser appears to be the video-on-demand services offered by cable operators like Comcast Corp. (NASDAQ: CMCSA) on a pay-per-view basis.

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About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.