Digital content: the winner is streaming
By now it is clear what the winning models of digital content will be. Streaming will be the hegemonic distribution model and subscription will be the prevailing payment model. The biggest media group in the world, Disney, put the seal on this state of affairs. In August 2017, it announced that it was withdrawing its content from Netflix to start its own streaming service active from 2019. Bob Iger explained the rationale for this decision in an article that we commented on in a post and to which we gladly refer.
This step by Disney, which in the meantime has also acquired the 21st Century Fox conglomerate from the Murdocks, has unleashed the uproar. Everyone is preparing their own streaming platform on which to concentrate proprietary content that can be accessed through a subscription of between 5 and 10 dollars a month. It will be a war between the media groups against the technological ones, and within each cluster, to win the attention and the wallet of the consumers. An explosion that will undoubtedly leave the latter dazzled. Let's hope it doesn't happen like in Aleppo.
A sensible division of labour
Until now there was a certain balance, a certain order, a certain perimeter of action. Media groups, such as Disney and Time Warner, provided streaming with a portion of their content from which they made excellent revenues; OTT technology platforms, such as Netflix and Hulu, took this content and brought it to users by developing the necessary technology; finally, telephone groups, such as ATT and Verizon, provided the physical infrastructure to transmit content to subscribers over any Internet connection.
There was a precise and sensible division of labor according to the classic models of the culture industry. However, three serious problems loomed and exploded when streaming became mainstream in consumer preferences. These critical issues originated from the way these three individuals got into this business 10 years earlier.
Media groups saw it as an attractive new revenue stream as long as it didn't conflict with the golden egg business of cable TV. In fact, it was precisely this that was potentially jeopardized by the development of streaming on the Internet, for the identity of the business model and the reference user.
The streaming platforms had to submit to the conditions of the media groups that sipped the contents and imposed "barriers" on the premium ones, such as their deferred diffusion or through time windows. In this way, consumers perceived the streaming platform with sympathy but as a substantially ancillary service to the traditional one. A situation that was close to the ambitious leaders of Silicon Valley.
Finally, the telephone mammoths felt that they benefited only marginally from the market and audience success of the OTTs which were operating free rein on their expensive infrastructure to maintain and innovate.
The breaking of the perimeters of action
Underlying this balance was the aspiration of these three groups to control the Internet content business through their specific positions of power. Media groups reveled in the idea of "content is the king" and their mood was expressed well by Jeff Bewkes, ex-Time Warner boss, when in 2010, when asked about the Netflix threat, he replied that " Netflix was like the Albanian army conquering the world”, it lacked armaments, that is, content.
A situation that has changed today and in fact the sentiment of the media groups resembles: “Fire! The ship is burning." They realized that the old adage of "content is the king" is now out of tune and is giving way to a completely different music. Control of the digital business will go to those who have a direct relationship with consumers, i.e. the OTTs. This is why the media conglomerates have decided that the time has come to transform themselves into Netflix so as to operate directly on the distribution market with their own streaming platforms.
Instead, the goal of Netflix and the tech companies was to furiously increase the subscriber base, which was not only the measure of their market value, but made it possible to track customer behavior and gather invaluable information in advance on taste trends and cultural fashions. In addition, technology was furiously innovating the service by proposing and accustoming viewers to new ways of using and viewing content such as binge vision (marathons) and simple and instant access from all devices connected to the Internet, something complicated with suppliers of pay TV. Finally, thanks to an out of the ordinary capitalization, technologists began to invest in the autonomous production of content beyond the classic and routine schemes, leveraging big data and resources that not even traditional industry was able to bring into play. They attracted talent, ideas and audiences that had only been seen in the Golden Age of Hollywood. In 2017, Netflix and Amazon collectively invested more than $12 billion in the production of original content.
In 2017, social media also started filtering with streaming and Tim Cook recently declared that Apple will become a media company, climbing the content mountain from the technological side.
In the meantime, the telephone companies had launched a powerful pressure action against the government and legislators to put an end to the principle of "net neutrality" in order to be able to rate services differently towards operators and end users. An initiative that bore fruit with the advent of the Trump administration which put an end to net neutrality and effectively accepted the point of view of the telephone companies. Furthermore, the latter have joined the content fair by starting a furious acquisition campaign of media groups and initiatives to assume an important role in offering content to the general public. This latest initiative, however, paradoxically ended up damaging the groups who took it as proof that the market does not believe that telephone groups can play a significant role in the production and streaming of content. Nick Fildes in the Financial Times explained well why the market has not rewarded the effort of the technologists. I refer to his article, “Telecoms groups 'bets on content come at a cost. Bold effort to show that more than 'dumb pipes' are on offer has proved expensive, with share prices taking a drumming”.
Fragmentation will not benefit the consumer
It is now a war of all against all. It was precisely consumers who lit the fuse when they began to unplug the cable from the cable box and plug it into the jack
of the modem, replacing the expensive monthly subscription of the former with the much cheaper one of the OTT platforms. Even Amazon has decided to use the streaming of quality content to support its core business in e-commerce. All Prime service subscribers (free shipping) will have free access to Prime Video, the streaming platform of the Seattle giant on which the original content produced by Amazon Studio also travels, often appearing in the five Oscars, Golden Globes or Emmys Awards.
Will the consumer who started this confusion be the main subject to benefit from it, or is there any doubt about the advent of this state of affairs? There is doubt.
The extreme fragmentation of streaming, bordering on balkanisation, will lead to problems for consumers. The contents will no longer be in a single access point, but will have to be tracked in their specific release scope; the various platforms will not be interoperable and a specific account will have to be created for each; a disintegrated and widespread schedule will have to be managed, each service will have its own performance and its own levels of return in terms of transmission quality and execution efficiency.
Nothing unsolvable, there will undoubtedly be aggregators to unify the offer, but here is a new intermediary between the consumer and the service. In short, it will be quite a mess.
Then there is an even more existential question. The business of paid content will develop on the subscription model rather than on retail purchases also for what concerns information, books, video games and it already is for music. How many subscriptions can a consumer sign up with the hope of being able to keep them under control so as to value the investment made? Instead of getting lost in the labyrinth of subscriptions, the consumer will not return to occasionally download the shows or contents that currently interest him from peer-to-peer systems, reserving the subscription only for services with a larger offer that is possibly well-assorted and distributed among various genres?
Then there is the issue of the spending ceiling. Many flee from the cable to the Internet to save on average spending which can exceed 100 euros per month. Can these consumers accept that the accumulation of subscriptions leads spending to exceed that level that was considered onerous?
Gady Epstein, the media editor of the Economist, tried to answer this and other questions that arise from this state of affairs in an article with the rather explicit title “You ain't streamed nothing yet”. We report below his considerations that we totally agree with. Good continuation!
The streaming revolution
Suddenly everyone wants to be Netflix. There's already a glut of streaming options for television and cinema. In the US, video addicts can already choose from Amazon Prime, YouTube, HBO, Starz, Showtime, Hulu and CBS All Access. Other countries have their own hefty menu of choices. But this era, already referred to as "the peak of TV," has yet to see anything. This is just the beginning of the streaming revolution.
In 2018 every major player in Hollywood and Silicon Valley will enter the TV content competition or work to be there in 2019. Disney, Warner Bros, 21st Century Fox and AMC
are increasingly directly engaged in the Internet TV business. Jeffrey Katzenberg, the former head of animation studios at Disney and co-founder of DreamWorks Animation, is seeking $2 billion to start a subscription-based service for short-form video — a kind of Netflix-newsletter. Facebook plans to put more assets into video and is already streaming some TV shows. The same thing Twitter and Snpachat are doing.
It's a multibillion-dollar war for consumer attention. The battlefield has moved from the big screen and (for many) the small screen to that of smartphones and tablets. Well-capitalised tech companies are investing in increasing the time consumers spend on these devices. For traditional media companies and Hollywood studios, survival is at stake. They are losing television subscribers as viewers are turning to Internet video instead of the expensive bundle of pay-TV channels. Four major studios have already invested billions of dollars in Hulu, a co-owned streaming service, which came to prominence in 2017 with the television series “The Handmaid's Tale” which won 8 Emmy Awards and two Golden Globes. CBS started its own service with its flagship “Star Trek” to entice viewers to hunt down the $9,99 a month subscription. HBO, part of Warner Bros, produces high-priced shows like “Game of Thrones” and “Westworld” with an investment of $10 million per episode. To Amazon Jeff Bezos expressed his hope for a production of originals of the level of "Game of Thrones". Television is getting bigger, bolder, and more expensive than ever.
And then only three will remain…
The streaming rush of 2018 and beyond accelerated in the summer of 2017 when Disney boss Bob Iger announced that the House of Mickey will launch its own streaming service in 2019 and cease working with Netflix. At the same time John Landgraf, boss of FX (Fox's cable channel) which produces series such as "Fargo" and "The Americans", announced FX+, an ad-free streaming service available to subscribers to the service Comcast TV priced at $5,99 a month. AMC, which produces "The Walking Dead" and "Better Call Saul," offers subscribers a similar service for $4,99 a month. Warner Bros is producing shows for DC Entertainment's streaming service which is expected to start in 2018.
How many services will people have to pay for? Landgraf, who coined the term "peak TV," fears that at some point there will be as many streaming services as there are cable channels. There will be a big downsizing, a big bang, which the tech giants will take advantage of. Netflix and Amazon have large assets and a head start in subscribers, and studios will struggle to match them. The funny thing, Landgraf laments, is that studios and TV channels have helped make Netflix a giant by selling it their movies and TV shows.
There's another funny thing about Disney's move towards streaming. A few years ago Disney wanted to buy Netflix when they could still afford it. But most executives saw Netflix as a partner and distributor, not a competitor. Today Disney is one of the big global brands still able to create an alternative to Netflix. The mouse will be one of the few to survive the upcoming culling campaign.
