The raw economics of online movie distribution are compelling. Depending on your perspective they might also be exciting, or frightening, says a new report, "Online Movies 2014: The Internet as a New Distribution Channel for Movies," by Generator Research.

Over the period 2014 to 2018, revenues earned by movie producers worldwide from online and offline distribution will increase from $62.7 billion to $76.4 billion, or by nearly 18%. Revenues derived from online distribution will increase from 5.6% of total revenues in 2014 to 16.6% in 2018.

In 2014, movie producers worldwide will earn revenues of $29.6 billion from home video (DVD and Blu-ray) and all forms of TV licensing. Movie producers could earn the same amount by licensing all of their movies exclusively to online service providers - provided that these companies persuaded 45% of the world's broadband subscribers, or 348 million users, to each pay $15 a month for online access to movies.

While 348 million users might seem like a huge number, it is less than half of the worldwide installed base of Pay-TV subscribers (cable TV, satellite TV and IPTV).

"According to this hypothetical business model, for $15.00 a month, subscribers would gain instant online access to all movies that have ever been produced, along with new releases as they come out," says Andrew Sheehy, Chief Analyst. "They would also benefit from a range of value-added services such as recommendation and discovery features, social functions and more. And everything would work on all their connected devices."

As far as movie producers are concerned, because user demand for movie content would be unchanged (although it would be met differently to today), movie producers would be able to earn the same revenue as they do today and they would also be able to enjoy the same level of profitability, according to the report. Movie producers would keep producing movies at least in the same volume as they do currently, because their industry would be growing.

In this extreme view of how online movie distribution could work, the supply side (movie producers) and the demand side (movie viewers) would be unaffected by the internet, according to the report. The impact would be felt on the distribution part of the movie industry- 'the part that sits in the middle.'

"To us, it is clear that there is a sound economic basis for online distribution," says Sheehy. "Because of this, it is also clear that the internet will precipitate a generational shift in how movies are distributed for non-cinematic viewing."

Story filed 29.01.14