A Netflix-red-hot topic on this blog and certainly in the tech world is the rise of Internet TV and the belief that it will some day replace cable TV as our chief source of home entertainment.
In previous posts, I’ve covered My Cord-Cutting Experience; Netflix; Hulu Plus; Roku; and even my comprehensive Internet TV Guide. Now I’d like to offer a few predictions on the current status of these services and the future of Internet TV and pay TV based on my first-hand experience and research over the past 13 months.
First let’s take a look at the playing field. Right now we’ve got powerhouse Netflix. Then Hulu Plus. And Amazon Instant Video. And other services like Crackle, PlayOn, and Internet Apps from a variety of providers including Roku, Sony, Apple, Google, Samsung, Vizio, Boxee and more.
Note the very distinct difference between unlimited streaming like Netflix and video-on-demand (VOD) services like Vudu. An example: Warner Bros. recently announced a deal to rent movies through social-networking behemoth Facebook. Many news outlets suggested this deal, through Facebook, would challenge Netflix. That’s dead-wrong. The deal, as it stands now, is video-on-demand. A charge per Warner Bros. movie –a version of yesterday’s pay-per-view — not unlimited streaming.
There’s a feeling you get when you graduate high school and head off to college. It’s a special kind of freedom that’s hard to describe. You can make your own decisions. Stay out late and do pretty much whatever you want.
That’s how Netflix is living. No cable-backed parent over its shoulder. Big Red’s got nothing holding it back. Though CEO Reed Hastings recently said he’s not competing with premium cable like HBO, I don’t believe him. [Hastings has made similar comments in the past only to contradict himself later. Take his stance on original programming. Hastings said the company wasn’t in the business of original programming until Netflix gained exclusive rights to original series House of Cards in March of this year.]
Hulu, on the other hand, is still living at home. And its parents watch cable. Hulu is jointly owned by Comcast’s NBC Universal, The Walt Disney Co., News Corp. and global private equity investment first Providence Equity Partners. In the sale of NBC Universal to Comcast in late January, GE had to relinquish its decision-making power and 32% stake of Hulu. (See my media ownership post here.) The deal gave Comcast 51% control of NBC Universal, now labeled NBCUniversal (no space and no peacock). Previously, GE owned 80 percent. Prior to the sale, GE purchased the remaining 20 percent stake from Vivendi Universal. GE’s stake in NBCUniversal is now 49 percent, though according to USA Today the company plans to completely remove its shares over the next eight years.
With Comcast holding stake in Hulu, I don’t see how Hulu Plus will fully commit to Internet TV in fear of making cable obsolete. That is, if Comcast has anything to do with it.
Studios and cable companies still seem hesitant to enter the streaming game full-steam. In part because it threatens pay TV and also because nobody knows where it’s headed. Fear of the unknown. But the conversion is happening, albeit slowly. It will likely continue at that pace until we reach an Internet-TV tipping point.
Watch for studios to start their own services on a smaller scale. I predicted just last week that premium cable channels like HBO and Showtime would roll-out their own subscription-based offerings.
One week after my prediction, Time Warner announced the acquisition of movie-discovery service Flixster and Rotten Tomatoes, as well as plans to develop an expanded video service. Though no plans of including any HBO content, per the report. [HBO recently introduced HBO GO, an extension of its premium cable channel. It is free with a paid subscription to HBO and is not a stand-alone or even subscription-based offering.]
From the Business Wire release: Warner Bros. Home Entertainment Group will utilize the powerful Flixster brand and technical expertise to launch a number of initiatives designed to grow digital content ownership, including the recently announced consumer application “Digital Everywhere.” This studio-agnostic application will be the ultimate destination for consumers to organize and access their entire digital library from anywhere on the device of their choice, as well as to share recommendations and discover new content. The Flixster acquisition and “Digital Everywhere,” combined with the Studio’s support of the UltraViolet format are all part of an overall strategy to give consumers even more freedom, utility and value for their digital purchases.
I’d watch for more studios and content owners to explore options for skipping the middle man and becoming the means of distribution for their content.
Studios like Disney, CBS, Viacom, and premium cable like Starz and Encore (both owned by Liberty Media Corp.) will all look in this direction. At first, simply to supplement their current revenue model.
Recent rumors had big firms like Amazon, Best Buy, Walmart, Hulu and Dish Network teaming up to potentially launch a Netflix competitor.
Netflix is gaining a huge lead — the company just surpassed Comcast’s pay TV subscribers as the largest video-streaming service in North America –but in time there will be a number of subscription-streaming services. With overlap in content. For example, Netflix and Hulu offer some of the same programming or channels, while other programming is exclusive to the provider. Much like the DirecTV-Dish battle of today. (Or Netflix vs. Hulu Plus.) Only I see more competitors in the ring.
Right now, in 2011, we’re witnessing the easy part. There’s a clear distinction between pay TV and Netflix. Wait five years and we’ll see the transition taking place: cable companies — like Comcast, Time Warner, Viacom, and even satellite TV providers Dish and DirecTV — developing stand-alone Internet-TV subscriptions, separate from their pay TV plan.
So, at that end-point, what will be the difference between pay TV and TV over Internet, other than the means of distribution? First, the customization. Consumers will choose what content they want and when they want it. Whether it’s subscription services like Netflix or specific channels like, say, HBO’s Internet Channel. Second, the cost. The cost will be more in the Internet service and the streaming box, instead of paying to receive 300 predetermined channels. Subscriptions to our content will have to decline, as we see with Netflix subscription rates compared to that of a typical cable plan.
A few final talking points if pay TV as we know it today will move online and stream to our living rooms. 1) Live Newscasts; 2) Live Sporting Events; 3) Local News; 4) Advertising and 5) Local Advertising.
Live News is already happening on Roku, on the free Newscaster app. Al Jazeera streams live all day. In fact, I’m watching the live Al Jazeera stream as I write this section. So the capability is there. And Roku has a DVR-like function that lets you pause, rewind and resume the live feed. How about Sporting Events?
Xbox 360’s got that covered with its ESPN 3 app featuring live broadcasts and up-to-date sportscasts on a variety of sports. Roku’s got live coverage too including MLB TV, NBA Game Time, NHL and UFC. Local News is now streaming as well. Roku announced via Twitter on April 16 that it had added the first local news broadcast, Channel3000, a CBS News affiliate from Madison, Wisconsin. Roku pulls video from Channel3000′s website and makes it playable for free on the Roku player.
National News is better than ever on-demand with Xbox 360’s NBC News channel. Update: Roku introduced an NBC News channel in December of 2011, as well as CNBC Real-Time and Wall Street Journal Live.
Now Advertising. Hulu Plus has done the best job of incorporating video advertising into its content, using the pay TV model, ads within programming. A few of Roku’s internet apps have video ads as well as banner ads. How about Local Advertising, targeted just like Internet banner ads, based on location determined by the user’s IP address? But probably the greatest potential for the future of TV advertising is the connectivity. Imagine a television ad with a purchase, more info or social media one remote-click away.
It’s like cable, only customized and connected to the Internet. And on the consumer’s schedule. Almost as if every show on TV was Tivo’d for us. The consumer decides not only what content is displayed on his or her dashboard, but when it’s on.