Will Australians keep buying movies in the online age?

While streaming services like Netflix and Quickflix get all the attention these days, the somewhat old-fashioned idea of buying movies is a still key focus for Hollywood. For the major studios, there are greater margins to be found in selling us movies rather than renting them to us or offering them via subscription services. Hollywood wants us to keep building our movie libraries, rather than live off all-you-can-eat subscription services.

The challenge for Hollywood is that our viewing habits are changing as we slowly turn our backs on optical discs. Revenues from the DVD/Blu-ray rental market are in a nose dive, but even disc sales are in a slow but steady decline, according to figures from the Australian Home Entertainment Distributors Association.  Online sales will eventually need to pick up the slack.

Online movie sales are often referred to as "digital", even though technically discs are also digital, as opposed to analog. The official industry term for online movie sales is EST (electronic sell through), while DVDs and Blu-rays are referred to as packaged media.

When you look at the figures for packaged media, the shift in our habits is clear. The amount Australians spend on buying DVDs and Blu-rays is expected to drop 3 per cent per year until 2018, slightly lower than the global average of 4 per cent. It's actually a rather rosy picture when you compare it to the plunge in rentals. After a 30 per cent drop last year, disc rentals are expected to be plummeting at 39 per cent every year by 2018.

The industry is hoping that EST sales pick up the slack, rather than Australians abandoning the concept of owning movies in favour of a Netflix or Quickflix subscription. The good news for the local industry is that, on a per capita basis, Australia is second only to the United States in digital consumer revenues. When you look at music sales, Australia is one of the few countries where digital sales have managed to offset the drop in CD sales. We're still a long way from reaching that threshold for movie sales, but the numbers are moving in the right direction.

Australian EST sales grew a healthy 26 per cent in 2013, although they still only brought in around $70 million. That's only a tiny slice of the market compared to $1.1 billion made from packaged media sales. When you crunch the numbers, the small but fast-growing number of online movie sales isn’t enough to compensate for the slow decline in the huge number of discs we buy over the counter. In terms of overall sales, the drop in disc sales each year is still greater than the rise in online sales.

So how fast will EST sales grow? PricewaterhouseCoopers predictions, which combined online movie sales and rentals, say the boom will peak at 49 percent growth this year and ease off to around 12 percent growth by 2018. The movie industry is working hard to ensure that the lion's share of that growth comes from online EST sales rather than online rentals. Their efforts are working in the US, where EST is growing at 36 percent while online rentals are shrinking by 5 percent, according to Digital Entertainment Group figures.

So what is the industry doing to ensure we spend more money on buying movies rather than renting them? Firstly there's the expansion of the UltraViolet ecosystem, championed in Australia by EzyFlix. UltraViolet makes it easy to buy a disc or EST and access it from a wide range of devices.

EzyFlix also recently became the first retailer outside the US to offer a disc2digital service, letting Australians buy a digital copy of DVDs and Blu-rays they already own for just $2, then add that copy to their UltraViolet library for streaming or downloading to a wide range of devices. The UltraViolet working group is also developing a format to allow UltraViolet movies to be transferred between devices, like Apple's iTunes ecosystem, rather than needing to download a copy for each device.

The industry's other key strategy is to chip away at the window between when a movie appears in the cinema and when it is available to purchase. The push is to make movies available to purchase as an EST before they're available on Packaged Media, to encourage shoppers to make the transition from discs to digital.

Australia has a 118 day window between theatrical and home entertainment releases. In the last 12 months we've seen EST beat discs to the shelves on almost 100 titles, and we'll see more in the future as the Digital HD initiative expands to Australia. All the studios are getting in on the act, with major releases including;

• The Amazing Spider-Man 2 (Sony) - EST available August 7, DVD/Blu-ray available August 14
• Transcendence (Roadshow) - EST available August 22, DVD/Blu-ray available August 27
• Guardians of the Galaxy (Walt Disney) - EST available November 26,  DVD/Blu-ray available December 3

This seems like a great deal for consumers, until you look closely and realise that the gap was created by pushing back the DVD/Blu-ray release rather than bringing forward the EST release and eating into that 118 day window. Eating into the sacred 118 window will create tension between the movie studios and the cinema chains, but once again the writing is on the wall.

Around the world the movie studies are already dabbling in early releases. Lionsgate in the UK has even experimented with releasing arthouse movies in cinemas and online on the same day. Eventually early EST releases will eat into Australia's 118 day window, but the studios are taking it slowly in order to appease the cinema giants.

The release window for subscription VOD services like Netflix is much greater, so they're unlikely to get movies as the same time as the EST release, but the idea of a movie library is winning some people over – even if they're older movies. Technology is moving quickly and consumers are more demanding than ever, but Hollywood is determined to ensure that we continue buying movies to keep on our digital shelves, rather than leaping wholeheartedly into the all-you-can-eat revolution.