Two years ago, the online video streaming services competed for volume of titles and over the same potential users. The dinner table discussion over “Netflix vs. Hulu vs. Amazon” focused on which service offered the most shows and best movies for the price point. This year, the conversation has changed as Netflix has publicly shifted the way they’re programming the service. Now with more subscribers than HBO and a successful $100 million original TV series, House of Cards, in their repertoire ($3.6 million per episode), the service has stated that their main competitor is now HBO, not iTunes, Hulu or other internet streaming services. Most recently Netflix allowed 1,800 titles to expire, telling Mashable that it is working towards licensing titles “on an exclusive basis” and that their goal is to be an “expert programmer” and not a “broad distributor.” This strategy paves the way for a future where Netflix can more easily co-exist with other subscription services.
Consumers were hoping an $8/mo subscription could replace their cable bill (just as a $10/month subscription provides them with access to virtually 100% of music available). Unfortunately for consumers, $8/month will always only give us a small subset of premium video content. The dust is starting to settle and each service is presenting its unique value to the viewer in the marketplace. Netflix will increasingly be the place to go for their exclusive series (next up this month: Arrested Development) and for recently released movies — the same value consumers see in HBO. Hulu (owned by the major networks) will be your go-to for network TV series, indie films, classics and documentaries (what Netflix used to be). I’d expect old seasons of TV series to fall off Netflix over time as Hulu increasingly takes over this role in the market. The sports leagues have their own subscription options and many others will enter the market and find their niche. Popular music subscription service, Spotify, will supposedly be entering the video streaming market. Amazon Prime has launched Amazon Studios to start producing original series for release through Amazon Prime.
So just how many of these services would you have to subscribe to in the future to replace your cable TV package? If you’re spending $120 on your cable bill, odds are $50 of that is for your internet and $70 is for your TV package. To replace your TV package you would have to subscribe to 7 or 8 services to match the current amount you spend on TV. If this is the future, then there is room in the market for Hulu to co-exist with Netflix and others, just as cable networks can co-exist and are not necessarily competing for the same viewer. If you’re looking to cut your monthly TV budget and you’re hoping (legal) internet streaming is the solution, then you’ll have to decide what types of movies and shows you’re willing to lose. It will become increasingly clear over the next year which services are right for you as they will inevitably follow the footsteps of TV networks and program their services for a selected viewer demographic rather than the masses.
Last week, the LA Times reported that Millennials “seem to have little use for old movies” while Hypebot reported that for the first time since Nielsen SoundScan started tracking album sales in 1991, “old records have outsold new ones.” Digital consumers see music and film as two different experiences, even though they are consumed through many of the same devices and online stores.
The LA Times author argues that Generation Y finds older movies “hopelessly passé — technically primitive, politically incorrect, narratively dull, slowly paced. In short, old-fashioned.” Film viewers become accustomed to picture quality, special effects, but also a style of acting and storytelling that evolves with pop culture. In that sense, film consumption is becoming more like fashion.
Audio recording technology and the instruments used for popular music, on the other hand, have not changed enough in the last 20 years to render older recordings outdated. The difference likely does not matter to the average consumer. But also, we’re accustomed to listening to songs over and over, our favorite songs possibly for the rest of our life. Could a song from our childhood mean more to us today? In that sense, music may act more like a fine antique.
You could argue this has always been the case, but the phenomenon has amplified in the new online market as the quantity of media options and rate of change have accelerated. When presented with an overwhelming number of options, consumers will increasingly pick the newest, most culturally relevant film, particularly because there are not huge price differences between renting old and new. But among music libraries growing faster than ever, with unlimited access through services like Spotify, we may increasingly choose a song we already know.
As a content creator seeking fans, viewers or simply profit, producing a new version of something recognizable can overcome this phenomenon, whether it’s an updated remake of a popular film, a new sequel, a cover song or a re-record.
Images courtesy of Flickr users ‘overseastom’ (left) and ‘Jason Pier in DC’ (right)
What if I said that the better you understand the mechanism behind YouTube’s business model, the higher your streaming rate will be on YouTube? Yes, that means reading this article could improve your YouTube rates — maybe even double or triple them. Get ready for a major change in the way your content is valued.
If your business currently revolves around retail models, whether iTunes or brick-and-mortar stores or subscription services like Spotify or Netflix, you may not be aware of the primary driver of YouTube’s unique business model, which is projected by Citi to generate $3.6 billion in gross revenue this year. What’s incredible about their model is that even as YouTube integrates more and more pre-roll ads, which should reduce viewership, traffic grows 20% a quarter according to comScore.
The fundamental difference between the industry built around YouTube (arguably “the future”) and the industry music and film rights owners are accustomed to (a little too early to call it “the past”) is the difference between an auction and a retail store. Music and film rights owners have built their businesses around a retail model, where rates are set and their ability to drive revenue is tied to their ability to sell units or get streams. YouTube’s model works more like a TV network, where the value of the product is only as big as advertisers are willing to pay to advertise against it, so the networks are always looking for the highest bidder, like an auction. For a TV show that auction typically happens by the season, but on YouTube that auction runs by the split second.
So YouTube is an auction, which makes your new customers (the buyers) the brands and advertisers. While fans control your traffic, which is equally important, the brands control the value of your content (the price) in this new ecosystem.
IHS Screen Digest recently released their analysis of the 2011 US online film industry with some major changes from 2010. Other than the industry doubling to reach $992 million, it showed a major shift in consumption from transactional models to subscription models. Netflix alone jumped from a 0.5% market share to a 44% market share and iTunes dropped from 60.8% to 32.3%. At initial glance this suggests the future of film is a Netflix market; however, hidden behind the numbers are some interesting facts that challenge that perspective.
Market Categorization – Netflix’s 8,800% growth over the last year is related to the suddenly forced shift of their subscriber base from DVD rental to streaming only in 2011. As a result, the growth rate is likely to slow down this year to a rate more in line with premium pay-TV channels. Also, it’s unclear whether TV shows available on home video are being categorized in the film industry category or if IHS excluded this base of content. From my personal experience, more people use Netflix to catch up on TV shows than watch movies, and this would skew the perspective as well.
All Platforms Aren’t Competitors – The collection of films on Netflix is not equal to the library on iTunes or other transactional models. Netflix curates a limited collection of library films, often the sort of films consumers may not want to pay to watch but love to watch for free. In general, people use iTunes for new releases and niche or indie films. Similar to how we’ve learned that music streaming on Spotify or YouTube does not cannibalize iTunes download sales, I’d argue that increased activity on Netflix does not mean people are spending less on iTunes. The platforms are used for two different purposes. iTunes does compete, however, with other transactional models like X-Box and VUDU because consumers generally align with one transactional platform.
Walmart’s Doing Better Than Amazon & Google – When you exclude Netflix from the report and focus only on transactional models, iTunes, X-Box and Sony each lost 3% market share while Walmart’s VUDU gained 5%. That’s more than all “Other” platforms grew in 2011 combined in terms of market share, Amazon and Google included.
Think Global – While it’s helpful to see the breakdown of the US market, the online marketplace is a global industry, far more global than the traditional home video market ever was. The Orchard supplies films to over 35 iTunes territories and growing, while Netflix is just now starting to reach a few countries outside of North America. But Netflix’s ability to reach viewers in these new territories will be challenging. iTunes has already established a popular brand globally thanks to their music business, and X-Box thanks to gaming, and there are local subscription competitors in each region. Many of The Orchard’s clients see 50% of their film’s revenue come from outside of the US, so it’s an important consideration.
No matter which way you slice the pie, the market is expected to double again in 2012 according to IHS. We see the dust starting to settle and The Orchard is well positioned to navigate the online film marketplace, already partnered with all the major outlets.
Apple recently launched an update to their Apple TV operating system. The new look takes some of the focus off their à-la-carte movie and TV store and opens the experience visually to a more diverse app-style marketplace.
The shift turned a small list of supported internet services into an array of featured apps similar to the iOS operating system, but for navigating with a remote control that goes two directions – up and down – rather than the more versatile touch screen. Future updates will bring a slew of new video applications — perhaps Hulu Plus, HBOGo and Showtime Anywhere, to step up its competition with other TV-connected devices like X-Box, PlayStation and internet-connected Blu-Ray players.
The game will really change soon, however, when the cable/satellite operators launch their VOD applications on the Apple TV. Most operators, like Verizon FiOS and Comcast Xfinity, have launched operations to build TV-connected device applications where all TV content is available on-demand immediately after airing. The Apple TV OS is even more closed and restricted than iOS in terms of user experience, but this may be a good thing for consumers tired of their poorly designed cable TV interfaces.
Time Warner has an iPad app where you can watch many TV channels live as long as you’re in your home. Combine that live experience with the VOD applications they’re building, and I predict that by the end of this year, the Apple TV will carry cable TV applications that provide both live streaming of network TV and a robust on-demand experience, but with the simple and logical user experience we all love on the the Apple TV. That said, with a monthly subscription price point 5+ times that of Netflix and Hulu Plus, we stand to see whether this change in user experience can reverse the current trend of cable TV cord-cutting.
