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Profitable streaming services – will movies get there before music?

Netflix, the US DVD rental cum video streaming business is out cutting $1bn deals with movie studios for streaming rights and Hulu is contemplating an IPO – both developments which suggest the premium video streaming business is starting to reach maturity.  The music streaming business, by contrast, is still finding its way, and is characterised by conflict between the record labels and streaming service providers, none of whom are cutting $1bn deals or preparing to IPO. 

The interesting thing here is that even though the traditional music business model is collapsing the music industry is more loath to embrace streaming than the movie/TV industry, whose legacy model is merely starting to decline (the number of US pay TV subscribers suffered a quarter on quarter decline for the first time ever in Q2 this year – detail here).  Paradoxically, it might be precisely because the music industry is in freefall that its executives are unable to countenance the short term sacrifices that moving to internet distribution might entail.

The FT has a very good piece of analysis on developments in video streaming today which makes a number of noteworthy points:

  • Analysts are divided on whether pay TV has a future [the first time I’ve seen this].  Some argue that Pay-TV’s advantages in live sport and prime time shows like American Idol will sustain it going forward, whilst others argue that “cable will go the way of the landline phone industry.  It is nothing more than an empty pipe which the internet will replace”.  [I’m in the second camp.]
  • HBO plans to launch its own streaming service and won’t make its content available via any other sites.  [I think this is the way forward for large content companies.]
  • Netflix is in the first skirmishes of what could turn into a full-blown bidding war with the cable companies for movie rights.  The Girl with the Dragon Tattoo was available on Netflix before pay TV.  [A bidding war seems likely to me.  Exclusivity drives subs like nothing else (look at the way Sky’s UK business was built on its Premiership football rights) and we may be on the cusp of a general land grab for streaming customers.]
  • To enjoy streamed video services you need a 2MB internet connection to your home.

The other interesting piece of the movie/TV streaming conundrum is the device on which the streams are watched, and if it is to be the TV, how the streams will get from the PC to the TV.  Anecdotally, increasing numbers are watching direct on their laptop screens, and there are a number of companies looking to sell set top boxes and/or technology embedded into TVs which will help bridge the living room – not least Google, Apple and Microsoft.  And, of course, people can simply hook their PC up to the TV, either via cable or wireless.  That’s what we’ve done in our house, and it seems to me like it could turn out to be the simplest solution for many others.

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  • http://twitter.com/mystrangeworld Steve GLANGE

    i agree with you on most points except that the issue is getting the content from the workstation to the tv – imho, it is the other way round as more and more internet enable tv’s will be sold with their oem-like menu’s

    for the telco’s the objective to bundle an ott [over the top] technology as well as offer into their gui/menu so that the end user is not enclined to browse into the open web.

    best,

  • http://twitter.com/mystrangeworld Steve GLANGE

    i agree with you on most points except that the issue is getting the content from the workstation to the tv – imho, it is the other way round as more and more internet enable tv’s will be sold with their oem-like menu’s

    for the telco’s the objective to bundle an ott [over the top] technology as well as offer into their gui/menu so that the end user is not enclined to browse into the open web.

    best,

  • http://www.broadstuff.com Alan P

    Nic

    The value add per movie is far higher than per song, and you can’t split it into scenes and sell them separaely so its transaction economics and bundling/marketing ploys are much better

    As to Pay TV dieing, when Free to Air TV no longer relies on crap Ads sold to mental age of 8 lowest common denominators I’ll start to believe it :-)

    The streams will get to the PC to the TV via the XBox etc and evenetually all PCs will ahve a graphics driver that can do it.

  • http://www.theequitykicker.com brisbourne

    Hi Alan – some good points here, tks. There is a bundle to be unpicked here too though and that is the full cable/Sky package. I think people will increasingly go for a mix of their favourite streaming services to save money – e.g. Netflix + Hulu

  • http://www.broadstuff.com Alan P

    I agree re unbundling Cable style bouquets of multiple channels, most of which are bloat

  • http://www.theequitykicker.com brisbourne

    *most of which are bloat* exactly. Just like album tracks.

  • http://twitter.com/AndrewBellay Andrew Bellay

    Nic, Great insights.
    Why has the movie/TV industry been able to dodge some of the issues that the music industry has been ravaged by? Is there something fundamentally different going on or did the folks in Hollywood look at their music counterpart’s situation and say ‘we’re not going to let that happen to us?’
    What about the publishing industry? They seem to be asleep at the wheel.

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