Monday, January 17, 2011

Will 2011 be the "tipping point" for over-the-top video?

Ty Braswell wrote a thought-provoking post for VentureBeat, calling on his past experience as a music industry executive to suggest that the same dynamics that overturned the conventional order in the music business are happening in video:
  • Viewers now have easy access over the Internet to much the same content that was previously only available from cable, satellite and IPTV service providers
  • Convenience (for example, the ability to start watching a movie on your iPad, leave your house and pick up where you left off on your iPhone, and then come home and finish watching the movie on your HDTV) is driving consumer decisions
  • Service providers are raising prices, even while they're facing unprecedented competition from over-the-top video services
There is one big difference between the music industry's situation and that of the video industry: The music industry was decimated by completely free services such as Napster and P2P networks before Apple launched iTunes, while video content producers are still (relatively) healthy. The same formula that Apple came up with for iTunes in the music business is being applied to video successfully by Netflix, Amazon, and, to a lesser extent, Apple itself. There's money to be made, but who makes the money is shifting from the service providers to the over-the-top distributors and content providers.

Braswell gives the example of ESPN, which typically charges $4 per month per cable subscriber. What if millions of consumers were willing to pay $12/month to ESPN if they could get it wherever they want, without a cable subscription? ESPN would be way ahead, even if 30% or 40% of the gross revenues went to Netflix, Amazon or Apple, and those companies handled distribution and billing.

I'm not a big sports fan, but I'd gladly spend $10/month for the Discovery and National Geographic networks, and go back to basic cable for everything else. Could Time Warner sell a bundle of its cable channels directly? I think that it could. Would Fox News viewers pay for anywhere, anytime access to the Fox cable networks? I believe they would. Even better, unlike the music business where there's Apple and everybody else, no one company dominates over-the-top video distribution. Netflix is the biggest player, but by no means is it the only player. That gives the movie studios and cable networks more negotiating power and pricing leverage.

Content providers can see the new over-the-top landscape as "the sky falling", or they can see it as an opportunity to gain more control over their pricing and distribution.

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