Content Rights Remain the Key Obstacle for Streaming

Big new business platforms typically require that a new ecosystem be built. That is the case for streaming TV as a successor to linear TV.

Content suppliers must agree to license distribution of the content in that form. Internet access must be widespread and of reasonable quality. Scores of millions of devices or adaptors typically have to be put into place.

PC and mobile device screens are widely populated; TV-capable screens less so. That means robust markets both for media adapters such as Chromecast, Fire TV and Roku, as well as higher sales of smart TVs.

On that score, about 26 percent of U.S. households own a streaming media device and 34 percent own a smart TV, according to Parks Associates.

That might help hexplain why linear video viewing is dipping and streaming is growing. About 40 percent of U.S. households subscribe to a paid digital video subscription service, with Netflix being the leader (32 percent), followed by Amazon Prime Instant Video (19 percent) and Hulu Plus (9 percent), according to the The Diffusion Group.

Across all of these services, Millennials have significantly higher subscription penetration, with nearly half buying Netflix.

Among Netflix subscribers, the preferred method of watching (44 percent) is through Internet-connected TV devices such as Apple TV and Google Chromecast.

Computers (27 percent) and gaming consoles or Blu-Ray players (21 percent) also are extensively used by the Netflix subscriber base.

The average household also spends over $6 per month on subscription Internet video services such as Netflix or Amazon Prime.

The streaming ecosystem is well on its way to completion. The last remaining big hurdle is the licensing of rights to distributors on a nearly ubiquitous basis. The other big questions are the terms and conditions of such licensing.

Business models contestants can try will be shaped by contracts that limit ways the content can be sold to customers. Up to this point, standard linear video contracts stipulate that channels must be placed on the retail tiers that are most often purchased.

Streaming sometimes is allowed when the user already has purchased a given channel as part of a linear package.

Streaming licenses can vary. In some cases, whole TV series and movies can be licensed, and viewed, a la carte. In other cases the access is possible as part of a streaming package created by a distributor such as Netflix or Amazon Prime.

Netflix introduced the concept of binge viewing, where all episodes of a given series could be watched, immediately.

Among the bigger questions for a future streaming business is whether bundling will reemerge in new forms. Some would argue it is cumbersome for consumers to navigate a content landscape where every network is a separate destination. Channels and networks aggregate content for a reason: it is user friendly.

Likewise, distributors aggregate multiple channels and sources for the same reason. In a future streaming business, one issue is the dominant or preferred packaging model. And many would bet that some form of bundling will reemerge. 

The linear video business will be transformed. But the role of distributors is likely to remain.