Profitable streaming services – will movies get there before music?

By August 25, 2010 12 Comments

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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