As DVD sales through mass retailers start to flatten, online DVD rental outfits BigPond Movies and ASX-listed Quickflix are racing to launch movie download services by March.
However, Quickflix CEO, Stephen Langsford, said it could take five years for the market to develop to the point where downloading digital movies became the norm.
"We are fairly conservative in our outlook for digital downloads, it will start to happen this year, but the broader consumption will take five years to develop," he said.
Based on the NASDAQ-listed online DVD rental service Netflix, Quickflix offers a recommendation and personalisation service, which tracks customer consumption patterns and makes suggestions accordingly.
"We see ourselves as an online consumer interface with an almost limitless array of content that can be used to create a community where folks can review and recommend titles to each other," Langsford said. "We are aiming to introduce a digital download service to sit by the DVD rental and retail service we currently offer so that people can choose the way they want to consume their movies."
While the initial impact will be slight, the launch of such services is unwelcome news for DVD retailers, who are already facing flattening sales after five years of strong growth.
According to research conducted by retail trackers GfK, the growth in the billion dollar DVD market in Australia slumped through 2005, with mass merchants hardest hit.
"Mass merchants saw a 13 per cent increase in unit sales in DVDs, but a 4 per cent fall in the value of those sales," senior retail service manager for GfK, Ben Clifton, said.
Overall DVD sales growth fell steadily throughout 2005 from 17 per cent in the first quarter to -1 per cent in the final three months. It was the mass merchants that took the major blow as sales through specialist Hi-Fi stores - both in terms of units sold and value - increased throughout the year.
Moreover, Clifton said buying patterns shifted from new release movies to DVD releases of TV series, sports and documentaries.
"Home entertainment systems are selling well and that has had the knock on effect of people choosing to watch not just movies but their favourite television program as well," Clifton said.
Langsford saw this buying pattern as a precursor to changing media consumption patterns, which have been facilitated by digital entertainment technology coming into the home.
"What we are seeing is consumers opting to watch programs when it suits them rather than waiting on free-to-air programming," Langsford said. "We expect this trend to continue and actually offer to rent DVDs based on TV series in sequence, so they can rotate through the series as they appeared on free-to-air television."