Vudu Market Share Soars in H1 2011, iTunes Regains Its Mojo

Turns out Wal-mart's purchase of video-on-demand site Vudu is starting to pay off. The service, which just last month earned its way onto Wal-mart's home page, has seen its share of the U.S. online movie market increase five fold since the megaretailer purchased it in February 2010, new research shows.

Vudu's share share of U.S. consumer spending for movie electronic sell-through (EST) and Internet video on demand (iVOD) was 5.3 percent in the first half of 2011, up from 1.0 percent for the same period in 2010.

Vudu has emerged as a major market rival to established players like Apple and Sony," said Arash Amel, research director of digital media for IHS. "Vudu's gains were driven by several factors, including its shrewd device strategy, a good customer experience, a compelling user interface and its $1/$2 rental pricing system."

Apple's (NAS: AAPL) iTunes has controlled the lion's share of the market but has been seeing an erosion of its share. That trend, IHS said, has reversed.

iTunes' share was 65.8 percent in 1H2011, up from 64.9 percent for the same period in 2010. In the first half of 2010, by contrast, it declined 11.9 points year-on-year. In fact, the first half of 2011 marked the first increase in share for iTunes since two years ago in 2009.

"iTunes' expansion of its market lead represents a remarkable achievement in light of intensifying competition from a slew of aggressive rivals," said Amel. "Much of iTunes' success can be traced to the rising usage of Apple's AirPlay system, which allows wireless video streaming to consumer electronic devices including televisions. This has expanded the reach of iTunes to new platforms, boosting sales of movies from the system." Other factors that enhanced iTunes' share include the growing installed base of the iPad.

Amel said both Microsoft (NAS: MSFT) and Sony lost share in the first half of the year. No. 2 player Microsoft saw its share shrink as the allure of its Kinect motion-sensing device began to wane; No. 4 Sony's widespread security issues were blamed for its skid.

In the No. 5 position, upstart Amazon (NAS: AMZN) saw a small gain in its share, but likely was stymied from more growth as it was in the process of shifting toward more streaming on demand.

IHS said the iVOD and EST business in the U.S. topped $229 million in the first half of the year and forecast the market will rise to $487 million for the full year.

"In the current economic climate, consumers are more interested in accessing movies than in owning them," Amel said. "Because of this, growth in EST has virtually stopped. Whatever small EST growth that is happening is coming from aggressive sales on iTunes, as well as discounting across major services."

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