We are in the midst of a shift in the way we consume video content. Nielsen released its first set of online video metrics since June 2010. With online video usage up a staggering 45%, our content is increasingly being delivered by online services. Along with this continued change in our viewing habits, there is a continued change in revenue streams for video content. We can delve into piracy and its potential effects on revenue streams another time.
While consumers migrate to online services, the only paid subscription online service that is in the top 10 is Netflix (by total video streams and unique viewers). According to Nielsen, the average U.S. video viewer spent 11 hours, 8 minutes watching Netflix content. This is significant not only because web rivals such as YouTube and Hulu provide free (ad-supported) content but also because Netflix is growing at a faster pace than these companies. The eyes have it. Netflix will continue to alter the revenue streams of the television and film industries, and all of these services are causing shifts in the revenue models of traditional media.
The long term outlook of various media may change based on policy. While ad-supported syndications are currently winning the battle for viewership in aggregate, Netflix or its next iteration may have better prospects. For instance, if the U.S. adopts a usage based billing (UBB) for internet data then these statistics may reverse. Currently, Canada is attempting to use UBB over its data pipelines, and the effort in Canada is being met with criticism. With Netflix purportedly using 1/5 of the U.S. downstream traffic (as reported by Sandvine), policy will, as always, drive strategy, though hopefully policy can avoid picking winners and diminishing competitive choices in the online video space..
Amazon may pose a threat to the Netflix model. In its latest 10-K, one of the ‘risk factors’ that Netflix mentions is the outsourcing of a huge portion of its operations to a division of Amazon called Amazon Web Services (AWS). As the filing states, “Given this, along with the fact that we cannot easily switch our AWS operations to another cloud provider, any disruption of or interference with our use of AWS would impact our operations and our business would be adversely impacted.” With Amazon poised to offer movie streaming via Amazon Prime, Netflix’s lofty expectations and revenues may take a hit.
All of this growth in the online video space runs parrellel to the steady loss of video customers disrupting Internet Access Provider’s business models(Comcast lost video customers for the 15th straight quarter; Time Warner Cable – 7 straight quarters; and Cablevision – 2 straight quarters).
Advertising for these companies are back to mid-2007 levels because video streaming is upsetting it.
The convergence of television and the Internet will continue to move forward, and it will be important to make sure that on the other side of the change we have actual competition in the online video space, as well as an open and competitive internet.
