The Evolution of On-Demand Video

September 25, 2013 Matthew Wee

Content is changing. New series like the Emmy nominated House of Cards, as well as tried-and-true shows such as Arrested Development, are being created by and distributed through video-on-demand service Netflix. Not too long ago, producers and directors would have to battle studios to distribute television shows; today, they have the ability to go directly to the consumer.

Innovative new media companies like Netflix have already begun making their first moves; YouTube introduced paid channels a few months ago with franchises such as Sesame Street and UFC. Given the spread of mobile devices (more people have access to mobile devices than toilets, according to a recent UN survey), how will this era of video evolve?

1. New Methods of Delivery

The long and short of it: users who want to watch television no longer need a cable subscription to do it, and users will want more than just a TV – they will want a mobile device or a connecting device of some sort.

YouTube is in the perfect position to supply and distribute videos that satiate viewers’ demands. While YouTube likely won’t be able to charge for LOLcats, they will be able to charge for an equivalent to House of Cards. The website already has an incredibly popular video surfing platform in place and are beta testing paid channels, so if YouTube decided to make the premium content opportunity available to all types of creators, they would have a ton of curious users to market to. Their challenge: How can YouTube take some of its more compelling or remarkable content, and turn it into marketable content? How can it create content at the production caliber of House of Cards?

The beauty is that YouTube isn’t constrained to traditional programming; this means that YouTube could potentially distribute more niche films as well, like documentaries. Conversely, Netflix needs to continue working through old systems and power structures (e.g., the studios) because its consumer appeal is in selling traditional programming.

While the option to go direct to consumer is growing more attractive, I’d like to add one caveat: I doubt there will ever be a world without distributors. Cable service providers will always take a slice of the pie, simply because their reach is irreplaceable. Similarly, many content producers may not necessarily want to take on the painful chore of distribution; they would rather focus on making high-quality content. If they retain the ability to create compelling content, they also have the ability to charge distributors or service providers more for it.

2. The Consumption Channel will Change

Today, because of a lack of LTE coverage (a.k.a., high-speed data) and costly data plans in North America, playing video is simply not a good idea on mobile phones. Conversely, video consumption in Asia is widely available (e.g., there is a free service on Tokyo subways and Indian railways).

Similarly, many commuter systems in other countries are built on travel via train; they don’t require active drivers. This leads to a consumer behavior difference: commuters don’t have to pay attention to the road. Rather, they just have to kill 1.5 hours on the commute, and the phone is a great tool for that.

In contrast, North America is still primarily composed of travel systems that involve a lot of driving. Even for non-drivers, it’s difficult to stream video on your phone for 1.5 hrs without incurring incredible service charges or draining the battery.

That means North America still presents an opportunity, and companies and governments are laying the groundwork for a much more Internet-intense environment. For example, the New York Metropolitan Transportation Authority recently installed Wi-Fi in 36 subway stations. With that information infrastructure upgrade, commuters now have an option to watch more video on their mobile devices on their way to work or school.

3. Different Methods of Monetization

Much like how television viewers pay monthly subscriptions, younger companies like Hulu and Netflix also operate on monthly subscriptions. iTunes sells episodes and seasons of television shows and videos, which is similar to how retailers sell individual DVDs and Blu Rays.

I believe that both of these methods will get more expensive; cable prices will increase because they will start offering additional TV services themselves (e.g., a subscription service that makes content available on mobile devices in addition to TVs, like TV Everywhere) and charge accordingly.

As its growth rate mellows out, and as competitors join in the fray, Netflix will have to start raising prices. More companies will compete in the same arena as Netflix, which means studios will have options on who else to go to. This means higher bids for content, which Netflix will have to charge consumers for.

Closing Thoughts

The opportunity for innovation is prime because Hulu and Netflix have laid the fundamental groundwork of business models, and teaching people the behavior to consume on any non-classic-cable-TV devices. You no longer need to get home at a certain time, nor do you need to sit in front of your couch to watch something; rather, you can pick up your show right where you left off on any device with a screen.

There hasn’t been much innovation since Hulu and Netflix made their debuts. That will change shortly. In this era of video, consumers and businesses will reward innovation. The evolving information infrastructure and new consumer behavior, as well as the new ways to make money off video, means companies can continue reinventing the way video is experienced. By doing so, they will usher in the new era of video.


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