Pay TV operators are starting to lose their long-standing dominance over movie rentals to services that give consumers more control, with 16 percent of all paid on-demand movie rental transactions going to their Internet-based competitors in 2011. Even more worrying for the status quo, users perceive iVOD movie services as providing better value and a wider selection of available titles than their more mature pay-TV cousins.

This information is in a new report from the NPD Group’s VideoWatch VOD tracking service, which said movie rentals from iTunes, Amazon, Vudu and others already have seven million users.

The report compares that number to the 40 million people – 15 percent of U.S. consumers ages 13 and older – who used pay-TV VOD movie services from a cable, satellite, or fiber-optic provider in the twelve months ending August 2011.

NPD Group said that revenues for the pay-TV VOD movie market reached $1.3 billion last year, as compared to only $204 million for iVOD movies, so the danger isn’t imminent. But there were 4 million fewer pay-TV VOD users who paid additional fees to watch movies in August of 2011 compared to August 2010.

The trend has relevance to cord-cutting, too, with iVOD users reducing their time spent watching TV shows, news and sports via pay-TV companies by 12 percent between August 2010 and August 2011. “Pay-TV operators now must not only defend their movie VOD revenues, but also counter an emerging threat to the basic programming served to consumers,” said Russ Crupnick, senior vice president, industry analysis for the NPD Group.

Pay TV providers already have an established relationship with the customer, with a pre-existing billing setup, familiar remote controls, and almost no learning curve regarding how to rent a movie. But as online services improve, those substantial advantages erode, Crupnick noted

“The challenge for pay-TV operators is that there is significant overlap between iVOD and pay-TV VOD movie usage,” Crupnick said. “This overlap is expected to increase – possibly cutting deeply into pay-TV VOD movie revenues – as growth in consumers’ use of Apple’s iTunes, Vudu, and other services expands to new connected devices in the home, and as iVOD interfaces become easier to use.”

NPD Group’s VideoWatch VOD only reports on a-la-carte paid movie rentals, and does not include free or paid viewings of television shows or series; nor does it include Netflix streaming movie subscriptions or free movies from pay-TV providers that are included in their subscriptions.

Related links:

VideoWatch VOD –

NPD Group’s VideoWatch VOD release –

Photo by Flickr user redjar, used under Creative Commons license