Despite a roller coaster year with a lot of missteps, Netflix still managed to become the largest U.S. online movie service based on revenue in 2011, according to market intelligence firm IHS iSuppli.
In fact, Netflix's rise in the domestic online movie market was quite meteoric. Netflix’s market share grew to account for 44 percent in 2011 -- up from less than 1 percent in 2010.
But as Netflix saw its star power soar, previous leader Apple and its iTunes entertainment platform dropped to 32.3 percent of the market share in 2011 -- down from a 60.8 percent in 2010. Nevertheless, IHS pointed out that Apple still secured strong revenue growth for the year overall.
Dan Cryan, a research director for digital media at IHS, explained in the report that these numbers will likely continue to change dramatically over the next year or two as online video becomes the norm.
2011 marked a sea change in the online movies business that saw the balance of consumer spending shift from a DVD-like transactional model to more TV-like subscription approach. The online movie business more than doubled in 2011 to reach $992 million and it is expected to double this year as well.
Cryan also cautioned not to read too much into an Apple-Netflix rivalry here because "the core value proposition of the two services is actually very different." That's because while both services are focused on hardware right now, each of them have closer competitors to keep in mind. For example, IHS warned Netflix should watch out more for Hulu and Walmart-owned Vudu.
These surges for online video and on-demand services comes on the heels of another IHS iSuppli report published on Friday, which found that U.S. households decreased their spending on physical media purchases and rentals at double-digit rates in 2011.
Total spending overall by Americans on packaged retail video came out to roughly $8.8 billion in 2011, down 12 percent from $9.9 billion in 2010.
Rental numbers for physical video was down too, which might have contributed to Netflix's gain in the online video market. That's because Netflix split up the DVD and digital streaming subscriptions last year, which probably forced many users to opt for one or the other.
Considering that Netflix is supported on nearly everything from smartphones to game consoles, sticking with the $7.99 streaming-only option made a lot of sense to many subscribers.
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