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.
When Richard Gottehrer and Scott Cohen first founded The Orchard back in 1997, they did it because they could see the potential of digital way before its prime — before iTunes, YouTube and Facebook had even launched.
In 15 years, the industry has certainly come a long way, and while we pride ourselves in continually staying on top of the fold and up-to-date on the most recent and budding trends, we thought it’d be fun to go back and see some of the things we didn’t see coming — back in 1997.
Looking back at this list gets us pretty excited at how much the industry has evolved, and that we work in a field that is so versatile and innovative. So bring it on! We’re ready to roll for another 15 years!
Continuing their world conquest for domination of screens everywhere, Netflix recently announced expansion into 4 Nordic countries: Norway, Denmark, Sweden and Finland. Not to be outdone, HBO, a unit of Time Warner Inc, said the following day that they too will be launching a video distribution venture — alongside Parsifal International — dubbed HBO Nordic.
Nordic consumers already have access to similar offerings from Amazon, Lovefilm and Acetrax, but the addition of Netflix and HBO will bring a plethora of great content that hasn’t been available through a streaming service to date.
Why the heated competition in the Nordic region? According to Nordstat, these countries have a fixed broadband household penetration of 80% to 92% — significantly higher than the EU average of 67%. They also represent a high level of mobile broadband users. More internet connectivity, in theory, should lead to higher availability of streaming services and presumably subscriptions.
It will be fun to watch as two sides of the content model duke it out. In the blue corner stands the reigning champion — HBO, the cable networks and content creators of yesteryear — who aren’t going to let anyone make a buck on their premium content. In the red corner stands the new distribution models — the Netflix’s of the world — who are scraping for every piece of content they can get their hands on (even if it means making their own). Let’s all hope that we, the consumers, come out on top after the bell rings!
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.
