This year Amazon and Netflix are buying movie rights – sports next year?

By | Amazon, TV | 2 Comments

I wonder if history will look back on Netflix’s 2013 screening of House of Cards as a watershed moment. It was an incredibly brave bet at the time – an investment of $63m in production costs from a company whose previous success had principally come from re-running TV shows that had premiered on traditional TV channels. Netflix was following a formula that had worked well at cable and satellite companies around the world – buy exclusive content to drive subscriptions – but they were the first streaming service to do it at scale.

Fortunately for them, House of Cards was (and is) a massive success, winning 3 Emmy awards, drawing millions of views, and most importantly, is widely perceived as having made a significant contribution to Netflix’s subscriber growth.

On the back of that success Netflix doubled down on their original content strategy and Amazon has gotten in on the game.

I think of these early moves as Netflix and Amazon camping out on the lawn of traditional TV. They stood up and were noticed, and they won some battles, but it wasn’t clear how much of a threat they were to incumbents.

Now I read that Netflix and Amazon are buying up the rights to indie films at the Sundance Festival whilst traditional TV companies are scaling back their investment. If those investments prove successful in increasing their subscriber numbers they will be back bigger and bolder next year following the ‘content begets audiences’ playbook to profitably buy audience share from their competitors. Meanwhile, assuming those competitors don’t want to cede the market they will face the difficult task of rebuilding sufficient confidence to outbid Netflix and Amazon.

Remember also that most cable companies are encumbered with legacy data networks and are struggling financially whilst Netflix and Amazon Prime are growing nicely, and it’s easy to think that the cards are now stacked in favour of the new entrants.

The next logical step is for Netflix and Amazon to move into sports rights. When that happens we will know the battle has entered its final phase.

Disney’s new streaming service is the way of the future

By | TV, Uncategorized | One Comment

I’ve long thought that producers of TV and movie content should build direct relationships with their customers over the web. It’s been slow to happen though, largely because the content producers were wary of retribution from their cable, satellite and IPTV partners if they launched properties that competed with them. So instead of content owners moving to the web we got new web companies stepping into the void – largely Netflix, Amazon and Hulu. To start with they were aggregators in the same way as cable companies were aggregators and they competed with traditional TV companies for content – a happy world for content producers like Disney.

But then Netflix and Amazon started commissioning their own content and it started to look like the traditional TV content companies had missed a trick and left the door open for new players.

But now Disney is pushing back. They’ve just launched a direct to consumer streaming service, DisneyLife, for their content here in the UK. HBOGo is similarly a direct to consumer streaming service from a major content creator, albeit in the US.

You might be wondering, where does this all go?

I think we will see more TV content companies build direct to consumer propositions. That seems pretty certain.

The more interesting question is what happens to the consumer proposition. At the moment most people buy a subscription service from a cable or satellite provider which includes connectivity and a menu of options, maybe have a Netflix or Hulu subscription on top, and probably buy the odd movie from iTunes or Google Play.

Going forward the number of places where consumers can go to buy TV content is going to increase. There’s really value to subscription services which allow for a low effort, lean back TV experience where nobody has to think about whether it’s worth paying for the next show, but there’s a limit to the number of services anyone is going to subscribe to. That points to a significant part of the market going on a pay-per-view model. Maybe that will continue to be aggregated on iTunes and Google Play, but maybe new aggregators will arise which take the show from the content owners site and charge a lower margin. Maybe they will also offer superior browse and discovery.

Finally – this is a cord-cutters vision of the future where access is unbundled from content.

More data showing traditional TV viewing dropping fast

By | TV | 2 Comments

It’s premiere week this week in the US when the new season of TV kicks off and the news is that in key age groups far fewer people are watching (Nielsen data from Ad Age):

  • Number of adults age 18-49 watching dropped by 8%
  • Number of adults age 18-24 watching dropped by 18%

The fact that younger viewers are dropping TV faster than older viewers suggests the decline in TV viewing will accelerate. And it doesn’t take many years of 8-18% declines before there’s nothing left.

The big beneficiaries so far are of course internet and mobile streaming services YouTube, Netflix and HBO Go (the latter is now 2015s top grossing app). That’s old news though. What’s more interesting is where the next opportunities are coming, and with changes of this magnitude to an industry the size of TV there will others.

The one we’ve been thinking about recently is video and commerce. YouTube is on an amazing run and has spawned a whole ecosystem around YouTube stars, but making money on the platform is difficult and commerce isn’t well enabled. It looks like there’s space for something better.

Imagining the next iteration of paid TV

By | TV | 2 Comments

I read two facts this morning that got me thinking about how TV will look in the future:

That got me wondering what these young YouTubers will watch as they grow older.

Assuming they are going to want to watch premium content like Breaking Bad, and most won’t want to use BitTorrent for the rest of their lives they will have to start paying. The question is what they are going to buy, and I can’t see them going from paying nothing to paying £5.99 a month for a Netflix account, or worse, £29.99 for Sky.

Jim Barksdale, founder of Netscape famously said that “there are only two ways to make money in business: bundling and unbundling”. We’ve seen this a lot in media – iTunes unbundled the album into singles and now Spotify have bundled singles up into an all you can eat subscription.

With TV programmes the major story has been Netflix taking market share from cable and satellite TV companies but that has been substituting one bundle for another rather than unbundling, albeit in an on-demand rather than channel format. I suspect in future we will see a proper unbundling with more market share moving pay per view services. Like iTunes, except with discovery built in. And a UX that doesn’t make me want to scream.

I think there’s a opportunity to build a startup that aggregates the content, makes recommendations, and handles payments, taking a cut on the way. A bit like our portfolio company, but for TV. The challenge with this will be timing the startup to coincide with when the content becomes available to aggregate.


YouTube revenues forecast to hit $5.6bn this year

By | Google, TV | No Comments

YouTube logoeMarketer are predicting that YouTube revenues will hit $5.6bn this year, 50% up on last year (reported in the Guarian). Here are some other relevant facts:

  • Projections of YouTube’s revenues are increasing over time – in May Morgan Stanley were predicting $4bn
  • The growth is coming from young people who are watching most of their television online – this is a good example of a behaviour from a fringe group that is likely to become mainstream
  • Television’s share of advertising budgets has peaked
  • YouTube is now at 1.7% of global digital advertising spend – more than Twitter

For me there are two big takeaways. Firstly the advertising shift from TV to the internet has started and the trend will only be one way from here. Secondly Google is sitting on a major media asset. Their $1.7bn acquisition of YouTube in 2006 now looks amazingly prescient.


YouTube is now the new television

By | TV | One Comment

youtube-yt-stars-e1329353871909I just read that over 33% of viewing time on YouTube can now be attributed to videos that are 20 minutes or longer – i.e. long form content. There are now 1bn people viewing YouTube each month watching over 6bn hours of videos, so there’s a lot of TV style content being watched on the platform. Moreover, YouTube is growing fast and Google, Machinima, Maker Studios, and many others are investing heavily to bring more professional content to the platform in the hope of extending and even accelerating that growth.

Contrast that to traditional television viewing which is either flat or declining slightly depending on who you read and it is clear who the winner will be. And all this has happened before YouTube is meaningfully available on most people’s televisions.

YouTube is the new television.


Streaming services dependent on pirating

By | PCTV, TV | 3 Comments

Streaming media services from companies like Spotify and Netflix have long argued to big media owners that streaming is the way to capture market share back from pirate sites and hence increase revenues. Reed Hastings, CEO of Netflix, put it like this recently (from Torrentfreak):

“Certainly there’s some torrenting that goes on, and that’s true around the world, but some of that just creates the demand,” Hastings says.

Eventually these BitTorrent users may want to switch to Netflix as it’s a much better user experience than torrenting, according to the CEO.

“Netflix is so much easier than torrenting. You don’t have to deal with files, you don’t have to download them and move them around. You just click and watch,” Hastings says.

And there  is some evidence that people are indeed switching from free sites to Netflix. According to Hastings, there is evidence that BitTorrent traffic in Canada dropped 50% after Netflix started there three years ago.

But the dependency goes further than this. In an ironic twist Kelly Merryman, Netflix VP of Content Acquisition has said that popularity on file sharing services plays a part in determining which TV-Series Netflix buys.

YouTube launches channel subscriptions

By | TV | One Comment

Google yesterday announced the launch of paid subscriptions for YouTube channels. So far this is only for a pilot group of around 30 hand-picked channels, but they say they are going to expand to a broader list of qualified partners that will operate on a self-service basis. I take that to mean that getting approval to charge for a YouTube channel will be somewhat like getting approval for an app to appear in the Google Play store – most everything that isn’t offensive will get approved.

If so, this is a big moment in the ongoing shift to over-the-top TV. In the five years or so that Google has been operating its YouTube channel programme which allows content owners to keep 55% of ad revenues from their content the amount of premium content viewed on YouTube has sky-rocketed. YouTube channel network companies that like Machinima, Maker Studios and ChannelFlip that provide distribution and monetisation services to content owners have seen amazing month on month growth in videos viewed and are now enjoy billions of video views per month. Most of these views are from teenagers and young adults who use YouTube as a substitute or even replacement for traditional TV. This growth has come when the only form of monetisation available is an ad share with Google. Now that subscriptions are available expect to see more high quality content come to the platform and as history has shown us over and over high quality content brings viewers.

However, whilst this is an exciting moment for those of us looking forward to ditching our cable and satellite subscriptions I don’t think YouTube channels in their current incarnation will be the end game. Firstly, Google’s 45% take of revenues (they offer the same deal for ads and subscriptions) is too high and in the medium to long term they will face meaningful competition and either lose out or shift to taking a substantially smaller cut. Secondly, as Kevin Kelleher wrote on Pando earlier this week the online TV world is splintering into lots of subscription based walled gardens and the user experience is suffering as a result. At a minimum I expect services to arise which allow users to search and discover across all the services they subscribe to, but I suspect also that ‘pay for what you watch’ revenue models might eventually displace subscriptions. Subscriptions are another form of bundle and with good search and discovery and simple payments I think users will pay more when they are only paying for what they want and not having to pay for things they don’t watch.

Netflix’s big numbers

By | TV | No Comments

Netflix announced Q1 results yesterday, and they topped 1bn in quarterly revenues for the first time and reached 33m subscribers. No mean feat. But the numbers that really caught my eye are that Netflix will spend $350m this year delivering its service, and a further $2bn on content rights. Those are some punchy expenses and respresent a significant barrier to entry for anybody else looking to get into the TV streaming game.

I think that leaves the opportunities in TV squarely in the discovery space. Alongside their quarterly results Netflix published a paper on the future of television and one of their predictions is that we will soon see the end of linear TV. I buy into that for lots of reasons, not least the impact that Netflix had with House of Cards because the whole series was available to watch from day 1, but it begs the question of what experience will replace the ‘hit the couch, put your favourite channel on and sit back’ mode of engagement that is so prevalent with TV today. The obvious answer is a clever combination of playlists, social inspiration and algorithmic recommendations.

Netflix, Amazon, Google and Apple will try to own this layer as well, but there maybe space for a startup here, particularly given that consumers may want their discovery service to cover more than just one silo. In the long run it makes sense to me that these discovery services will link directly to the content owners, maybe handling billing and rights management. In that view of the world Netflix’s emerging content business will be much more important to them than their distribution business, which would be cut out of the equation. 

Why incumbents fail to respond to the threat of new entrants

By | TV | 5 Comments

Fred Wilson posted yesterday about the emerging battle between Netflix and HBO. Netflix’s strategy of developing their own premium content is in full swing now that House of Cards has been released. For those that haven’t read about it (or, since Friday, seen it) House of Cards is a high budget, all-star-cast 13 episode drama series that Netflix has produced. It was released on Friday, and interestingly, all 13 episodes were made immediately available, so big House of Cards fans can watch the whole lot in one sitting without the torture of wating 13 weeks to find out how it ends. It will be interesting to see if this heralds a change in TV series distribution generally. In ninteenth century England Charles Dickens and other top novellists seriaised their books in newspapers releasing a chapter each week. That practice ended, I assume because people prefer to buy books and consume at their own pace. The same might happen to TV series.

HBO has been producing their own high budget dramas for decades – The Wire is my favourite – and consumers subscribe to the HBO channel much as they can subscribe to Netflix. The big difference is that Netflix goes direct to consumer with their service whilst HBO goes through cable operators. HBO had no choice when they set the business up as their was no web, but there is a choice now.

Fred says in his post that Netflix’s business model is superior because:

Netflix allows you to have a direct relationship with them and use your account on almost every connected device I can think of. HBO requires you to have an account with a cable company and then even if you do, it is hit or miss whether you can use their service on the device you want to.

So the interesing question is why HBO isn’t copying Netflix?

They are providing services in Scandinavia which are very Netflix-like so they clearly understand the opportunity. I suspect it is that they don’t want to alienate their cable company partners, particularly given that Time Warner which owns HBO is also a cable operator.

It is often the case that incumbents don’t respond well to the threat of new entrants because to do so would require them to compete with their existing supply chain which would threaten friendships and most likely undermine revenues and profits in the short term. The other time that incumbents often don’t respond well is of course when to do so would cannibalise their own services. It is not that the management of these companies is stupid and don’t see the threat and opportunity, but rather that on a rational basis the risk-reward analysis of taking the short term hit in the hope of longer term success from a new and untested service doesn’t add up. We, on the startup side of the equation often see the changes as inevitable, but they don’t look that way to incumbents who maybe have less faith in technological change and are hence more open to arguments that the new service won’t compete adquately with what they have at the moment – e.g. streaming video versus cable, or to take an older example VOIP versus traditional telephone. That said, it isn’t uncommon for the rational analysis to be distorted by organisational biases in favour of the status-quo – e.g. over-estimating the importance of voice and/or video quality.