Winners and losers are inevitable in the internet era, and the content business has for some time been a prime example. Consumption patterns have been transformed, and with it, the economic fortunes of contending channels.
The linear video business now is approaching its own transformation, as have other media and retailing businesses in the internet era. How the business changes is the issue, beyond the simple observation that on-demand streaming is going to displace large portions of the linear delivery business.
For distributors, the big new trend is that content bundlers (networks) can become their own distributors (think Netflix). For content producers, the big change is that bundlers/distributors become content creators (again, think Netflix). The big theme is “going direct to consumers.”
That has potential positive implications for networks, negative implications for facilities-based distributors and already positive implications for OTT distributors.
Looking only at the implications for the content creation part of the ecosystem, Netflix has shown that streaming can be viable for an OTT distributor. To this point, Netflix has operated more on the HBO model (prerecorded content) and less on the “live TV” model. But many networks are trying their hand at OTT live TV as well.
As consumers switch to streaming and away from linear services, they (so far) spend less monthly. That means, ultimately, less investment in content. That is not necessarily better or worse, but different, for consumers and content bundlers (networks).
Less investment in content might mean less revenue earned by some content creators, and more revenue earned by others. The general thinking is that niche content will have a harder time getting funded.
That is akin to the funding strategies used by major studios to finance movies: they tend to rely on a few hot franchises and sequels. That is great when it works; but disastrous when it fails, as arguably has been the case so far in 2017.
Movie ticket sales in the U.S. market have been in a downtrend since about 2002. The sales softness continued in 2016 and revenue appears to be lower, at least in the U.S. market, again in 2017.
Networks and cable operators have argued for years that the streaming business model simply will not work as well--for consumers--as the current linear packaging system. Skeptics argue what they really are saying is that streaming will not work as well for content creators and some distributors.
But the linear model only works at scale. Smaller cable operators and small telcos have complained for years that linear video entertainment already is not profitable for them. On the other hand, there is Netflix, which is investing heavily in original content creation and acting as a distributor in its own right, albeit on an “over the top” basis.
Simply put, streaming will disrupt both content creators, bundlers and delivery business models. But the changes will be structurally different from what has happened in legacy communication markets. There, markets essentially were destroyed, not rearranged.
Netflix, for example, increasingly is reshaping the way content creation happens in the video business.
So streaming is likely to rearrange, rather than destroy the content ecosystem. Netflix provides the best example, as the firm has a goal of having original content represent as much as half of its catalog.
