The WSJ has reported that Netflix is holding early stage discussions with at least two U.S. cable operators, Comcast and Suddenlink, about having its app included in their set-top boxes. I've been seeing a lot of arguments for why Netflix partnerships would be good for cable operators, but it seems to me there would be a lot of risk involved for them if such deals materialized.
Helping Netflix become bigger and stronger would be disadvantageous for cable operators. First and foremost, this would be felt in the area of content rights. By securing past seasons of TV programs, Netflix has driven the binge-viewing phenomenon and become its biggest beneficiary. I expect binge-viewing will only gain in popularity going forward as more people experience it and more devices make it ever easier to do. Adoption of binge-viewing means those distributors with strong video libraries will do better.
I'm pleased to present the 198th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.
Just as Hulu was announcing this week that Hulu Plus is now Chromecast-enabled, new research from Parks Associates revealed that 50% of people already using Chromecast to watch Hulu content on TV are actually watching the free Hulu.com service. They're able to do this by using Chromecast's "tab casting" feature to stream from a tab in the Chrome browser. Their behavior undermines a key Hulu Plus value proposition (and differentiator from Hulu.com) of being able to watch Hulu content on connected TVs.
This isn't random behavior either; the Parks research also revealed that 34% of Chromecast owners stream Hulu content to their TVs every day, with 43% watching Netflix this way.
In today's podcast, Colin and I talk about how Chromecast is convoluting Hulu's model and more broadly how technology and consumer behaviors continue to pressure Hollywood's licensing/windowing practices. As a Hulu Plus subscriber, Colin also shares 2 other wrinkles: first, that certain Hulu Plus content is just available for "web-only" viewing and NOT for connected devices like Roku, Xbox or Chromecast, and second, that in the case of the USA Network program "Psych," there are actually more recent episodes freely available on Hulu.com than there are on Hulu Plus. I've reached out to Hulu PR for comment and will update as appropriate.
(UPDATE: A Hulu PR representative told me that permission to stream to devices is granted by the content provider and varies by show, so it's not possible to stream all Hulu Plus content to devices. More info about the policies is here.)
Click here to listen to the podcast (17 minutes, 41 seconds)
Hulu has announced that its Hulu Plus apps for Android and iPad are now Chromecast-enabled (iPhone coming soon). The Hulu Plus apps join the initial launch apps (Netflix, YouTube, Google Play), which were announced concurrent with the device's debut in late July.
I'm not a Hulu Plus subscriber so I haven't tested with Chromecast, but from the company's blog post, it looks like all the existing apps' features are maintained, with integrated one touch casting to the TV via Chromecast the only change. In my original post on Chromecast, I noted that a key Chromecast advantage for content providers was that it leveraged existing apps, and via a simple SDK could enable the integrated casting capability. This means Chromecast updates are relatively simple and inexpensive to execute - both huge factors in getting content providers' much-coveted attention.
Nielsen released additional data from its Q2 2013 Cross Platform report substantiating the trend toward "binge-viewing." Nielsen found that a whopping 88% of Netflix users and 70% of Hulu Plus users say they watch 3 or more episodes of the same show in one day.
The Nielsen data is directionally in line with survey results that Piksel released last week showing 94% of respondents engage in some type of binge-viewing behavior, either watching episodes together as quickly as possible, watching 1 or 2 every few days, or some combination of the two behaviors.
I'm pleased to present the 192nd edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.
In this week's discussion, we talk more about the unexpected role that Netflix and Amazon are playing in the CBS-Time Warner Cable retransmission consent dispute, which has knocked CBS off the air in major markets like NYC, LA, Dallas and elsewhere. As I wrote earlier this week, though "retrans" disputes have become commonplace, a new wrinkle in this particular one is that digital distribution rights are actually the main sticking point.
Having made lucrative digital deals with both Netflix and Amazon, CBS is justifiably reluctant to simply throw digital access to its programs into a deal with TWC, as it has in the past. The standoff highlights the uphill battle that pay-TV operators are having gaining content rights for their TV Everywhere services, which remain like Swiss cheese, with major holes in program availability. It also underscores the transformational role OTT powerhouses like Netflix and Amazon are having on the broader TV industry.
Further, Colin believes there's an opportunity for new market entrants (e.g. Intel Media, Sony, Apple, Google, etc.) to bid for both digital and linear rights, and then package access for consumers in inventive new ways. Colin sees broadband's lower cost of delivery creating a big advantage for these new players. I'm skeptical however, noting that the huge expense involved in licensing content and promoting a service from scratch would more than outweigh delivery savings. But, with so much change happening in the market these days, nothing can be counted out.
Click here to listen to the podcast (19 minutes, 25 seconds)
Disputes between broadcasters and pay-TV operators over so-called "retransmission consent" fee payments are a dime a dozen. Broadcasters, seeking their slice of the monthly fees pay-TV operators pay cable TV networks, have bargained hard for this new revenue stream. In this sense, the current CBS-Time Warner Cable retrans standoff is business as usual. What is new, however, is that digital rights - and more specifically the huge licensing fees that OTT's richest players, Netflix and Amazon, are now paying - have taken a central role in this particular drama.
As the WSJ reported last Friday, the real obstacle between CBS and TWC isn't what TWC will pay to retransmit the CBS signal, but rather what digital rights will be included, and at what incremental cost. Five years ago, these rights were a virtual throwaway, but now it's a totally different situation. Here's what changed:
I'm pleased to present the 190th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia.
We start our discussion with data that TiVo Research and Analytics (TRA) released this past Monday, which concluded, among other things, that Netflix does not cannibalize traditional TV viewing. TRA also identified the percentage of respondents who subscribe to Netflix (and other services) who watched "House of Cards." Using these numbers, Colin calculates that about 10 million people watched the program, a healthy amount by any standard (Netflix hasn't publicly released HoC's audience). Colin sees a class of "super-viewers" whose traditional TV consumption is augmented by, not substituted with, Netflix.
One thing that caught my attention in the TRA data was that while Netflix had a 57% adoption rate among respondents, Amazon Prime was right behind it, at 50% (Hulu Plus was further back at 18%). To be fair, it's not clear whether these Prime members are actually watching video included in Prime, or are mainly focused on the unlimited shipping benefit. But, assuming that many DO watch video, it's an impressive number for Amazon, and underscores how far Prime has come in the 2 1/2 years since Instant Videos were launched.
Colin and I discuss Amazon's broader agenda and how its aggressive pursuit of video is strategic in supporting both Prime and the Kindle ecosystem (all of which I described in my post this past Monday). Given Amazon's willingness to operate on razor-thin margins, I foresee the price for licensing high-quality content continuing to rise, which will in turn pinch profitability (and subscriber growth) at pure play OTT providers like Netflix.
Click here to listen to the podcast (16 minutes, 48 seconds)
Google's new Chromecast device dominated the video landscape last week, making it easy to miss a highly noteworthy news nugget from Amazon: on its Q2 '13 earnings call last Thursday, Thomas Szkutak, the company's SVP/CFO said, "We're having new Prime members come to Amazon largely because of video." Szkutak's comment was a stark reminder of how far video has come for Amazon in the 2 1/2 years since it was first included in the $79/year Prime service.
Video - and other content/apps - are critical to Amazon because they all support two of the company's most important consumer-facing priorities: growing its highly profitable and sticky Prime service and supporting its line of Kindle devices in the fiercely competitive tablet market. Amazon's ability to successfully use video in service to these other businesses no doubt helps drive its willingness to spend heavily on content licensing and also to invest in its own original productions.
Late yesterday Netflix reported its Q2 2013 results that were mostly solid, although U.S. net subscriber additions were a little lower than many expected. Beyond the results themselves, it was the method by which they were discussed that was noteworthy - for the first time via a live-streamed video Q&A session, powered by Google Hangouts (embedded below). CEO Reed Hastings, CFO David Wells and Chief Content Officer Ted Sarandos were peppered with questions from CNBC reporter Julia Boorstin and BTIG analyst Rich Greenfield.
As Hastings said upfront, the format was meant to emulate a more informal, "fireside chat" style discussion, as opposed to the typical, highly structured quarterly audio conference call with Wall St. analysts. No doubt reactions to the video Q&A are subjective, but I liked it a lot and believe it should be a model for other companies to follow. Importantly, the Q&A was another example of the expansive role online video can play not just in entertainment, but also in communications.
Last Friday afternoon, Hulu's owners Disney, Fox and NBCU/Comcast (note NBCU/Comcast is a passive owner) announced that they wouldn't be selling Hulu, despite an active bidding process. Instead, the companies will retain their interests and plan to invest $750 million in Hulu to grow it. Although the principal reason for the sale was a disagreement over Hulu's business strategy, the announcement said Fox and Disney are "fully aligned in our collective vision and goals for the business (although what they actually are were not disclosed).
This was the second time a Hulu sale failed to materialize and I believe that once again, the reason was that Hulu's owners realized "you can't have your cake and eat it too." Translation: Disney and Fox wanted to retain all kinds of content rights and flexibility, yet still wanted a very high valuation for the business. Since Hulu's next-day broadcast rights are at the core of its valuation, Disney and Fox's attempt to chip away at them led bidders to reduce what they were willing to pay, obviously beyond the level at which Fox and Disney felt it was still worthwhile selling the business.
Final bidding was scheduled to close last Friday in the Hulu sale process, with the list of potential buyers apparently narrowed to DirecTV, Chernin Group/AT&T and Guggenheim Digital Media. According to various reports (here and here), Hulu's active owners Disney and Fox (Comcast is a passive owner) have been insisting on a number of content licensing related deal points.
Hulu's next-day access to its 3 broadcast owners' hit shows has always been the heart of the company's value proposition. But a lot has changed in the online video landscape since Hulu was initially formed in March, 2007. As a result, in my view, there are at least 3 key reasons Hulu's owners are justified in bargaining hard over content licensing rights: the importance of TV Everywhere, the growth of well-funded over-the-top licensees and the potential of online video advertising. Following, I delve into each.
I'm pleased to present the 179th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. Yesterday, YouTube confirmed that it will offer content partners the ability to charge for subscriptions. In what its calling a pilot program, 53 subscription channels are being launched, some from established brands like UFC, PGA, National Geographic and Jim Henson, and many more from less well-known content partners.
In this week's podcast Colin and I discuss whether this is a big deal or not. Colin's more bullish than I am, seeing it as a very important piece in the YouTube puzzle, adding to existing advertising, rental and purchase monetization options.
I agree it's smart move by YouTube, but I don't think it's a game-changer. While I see this as the right thing to offer content partners - especially those with huge audiences on YouTube - this is akin to "freemium" type option that will require partners to very clearly differentiate the incremental content available in their subscription tiers in order to convert a small percentage of their free viewers to monthly subscribers.
A complicating factor is that for many users, YouTube subscriptions will be on top of - not a substitute for - already expensive pay-TV monthly bills. Then there's also a Netflix, Hulu Plus, Amazon or other SVOD subscriptions which already make a claim on finite entertainment dollars too. Lastly, YouTube is perceived as a "free" site by many, so it will take significant promotion by channels to persuade users to pay.
Bottom line: YouTube is doing right by its content partners in offering this capability, but it's up to the content partners themselves to make it successful. My guess is for most partners, advertising will continue to dominate their YouTube-related revenue for a long time to come.
Listen in to learn more!
Click here to listen to the podcast (18 minutes, 15 seconds)
I'm pleased to present the 177th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. Earlier this week, Netflix reported solid results for Q1 '13, adding a total of about 3 million new subscribers, 2 million in the U.S. and a million internationally. Netflix projects it can ultimately obtain 60-90 million U.S. subscribers, which would be 2-3 times as many as HBO, the biggest "premium TV" network.
As I wrote earlier this week, if that were to occur - and it's still a big if - it would mean Netflix would have to get a lot of middle and lower income American homes to layer on another $8/mo or more to their already substantial pay-TV bills, OR there would have to be material cord-cutting that essentially frees up household budget for SVOD subscriptions. Colin suggests a third way, which would be "cord-shaving" - subscribers cutting back on existing pay-TV services like sports networks or premium channels to make room for Netflix in their budgets.
That of course leads to the question of what HBO might do as it observes Netflix's continued growth. It's hard to see HBO standing still, yet, for reasons HBO has discussed in the past, unbundling itself from pay-TV would be a huge step for the company. Last but not least, Amazon - which become Netflix's biggest U.S. SVOD competitor - is rumored to have a set-top box introduction planned, which could also shift the competitive balance in the U.S. Bottom line, there are a lot of twists and turns yet to occur in SVOD in the U.S.
Listen in to learn more!
Click here to listen to the podcast (19 minutes, 6 seconds)
Netflix reported solid Q1 results yesterday, gaining 2 million streaming subscribers in the U.S. and another 1 million internationally. Netflix now has 27.9 paying subscribers in the U.S. and 6.33 paying subscribers internationally. With growth re-started since the 2011 Qwikster debacle, a persistent question is how big can Netflix become in the U.S.?
Traditionally many have thought the answer is in the 30 million subscriber range, which is where the biggest premium channel, HBO, has pretty much leveled out. This line of thinking assumes that Netflix is essentially another premium channel and consumers will treat it as such.
But Netflix's CEO Reed Hastings always answers the size question by asserting that Netflix can grow to become 2-3 times HBO's size, implying 60-90 million subscribers ultimately. He points to differentiators like Netflix having more content, being less expensive and available on more devices, having greater personalization, etc.
At starting prices of $8/month or so, affordable subscription video on demand (SVOD) services like Netflix, Hulu Plus, Amazon, Blockbuster and others would seem to appeal to middle and lower income Americans. But a new report from Nielsen finds the exact opposite is true: wealthier homes, with household income over $100K/year, adopt SVOD services at 185% of their index, while lower income homes, with household income under $50K/year, subscribe at just 47% of their index.
Adding to the picture, "Professional" homes subscribing to an SVOD service are at 150% of their index, while "Blue Collar" homes are just 63% of their index.
The data seems to support a contention that Netflix has repeatedly made, which is that SVOD services are typically adopted in addition to - not in substitution for - pay-TV services. To the extent that pay-TV rates have continue to increase, it makes sense that only upper income homes can afford to then layer on an SVOD service on top of pay-TV.
I'm pleased to present the 174th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. There's no question video is moving to streaming and electronic delivery, but DVDs still have plenty of life left. That's what Redbox is banking on to get a foothold with its new Redbox Instant service, as CEO Shawn Strickland explains in this interview. Both Colin and I think it's a smart, albeit risky, strategy given the inevitable downward trend in DVD usage.
I see part of DVD's durability as due to Hollywood's windowing practices. Because of the multi-billion pay-TV window, licensing to networks like HBO, Starz and EPIX, major studios delay the availability of movies in SVOD services. The intervening home video access continues to give DVDs life. Unless and until Hollywood abandons the pay-TV window, DVDs will continue to have life. And since Netflix has essentially abandoned DVDs, there's a big opportunity for Redbox.
However, Redbox Instant has another problem, which is that its streaming content selection today is terrible, as Colin explains. That means prospective subscribers have to determine whether its worth the $3/mo or so they're effectively paying for it on top of the DVD value which is worth around $4-$5/mo. Colin and I are both skeptical. Even if Redbox Instant doesn't fly, we both see DVDs being with us for a long time to come.
Listen in to learn more!
Reminder: Colin and I will be at NABShow next Mon. and Tues. in our booth SU12907. If you're there and have a moment, please stop by to say hi.
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I'm pleased to present the 173rd edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. This week we focus on the rising cost of content to pay-TV operators and the rising quality of content found online.
In a post yesterday, Colin validates pay-TV operators' complaints about programming costs, noting, for example, that at Comcast they rose from 34% of video revenue in '08 to 40% in '11 (at Time Warner Cable they were 41% and at DirecTV they were 45%). As we discuss, these escalating costs are eating into operators' profit margins as subscriber rate increases haven't kept pace. As VideoNuze readers know, sports is a major culprit in all of this, though entertainment networks have raised their own rates as well.
Against this backdrop, the quality of content available online is improving markedly. For example in just the past couple of weeks, we've seen Netflix announce another new series, with the producers of The Matrix films and Babylon5, Amazon Studios announce new shows "Betas," "Zombieland" and "Sarah Solves It" and Crackle a second season of "Chosen." Further, anime network Crunchyroll disclosed it's now up to 200K paying subscribers, TheBlaze (Glenn Beck's online video network) is raising $40M. Even the BBC, one of the most traditional TV networks, announced it will be premiering shows on its iPlayer.
In short, the quality of programming online is getting better all the time, while the cost of content to pay-TV operators is escalating, in turn putting pressure on subscriber rates. All of this means viewership patterns are bound to change and with the broader video industry.
Reminder: sign up for "Sizing Up Apple TV" a free video webinar, next Tuesday, April 2nd featuring Brightcove's Jeremy Allaire and me.
Listen in to learn more!
Click here to listen to the podcast (18 minutes, 57 seconds)
Flipping through yesterday's Best Buy circular, I noticed an ad (see below), which I believe is indicative of the type of pitches that are going to become increasingly prevalent to prospective cord-cutters and cord-nevers. The ad offers a packaged discount to an over-the-air ClearStream HD antenna from Antennas Direct with a TiVo Premiere and highlights logos from Netflix, Hulu Plus and Pandora. While the ad doesn't explicitly say "Dump your expensive pay-TV service now!," it has several key messages that might as well.
I'm pleased to present the 172nd edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. This week we first discuss Google Fiber, which Google announced this past Tuesday would roll out to a second city, Olathe, KS. Nonetheless, as we discuss, it still feels like Google Fiber is a hobby for Google, though its executives recently asserted otherwise. Neither Colin nor I quite understand what Google Fiber's actual market impact or game plan is, and we are skeptical that there's a business case to support its broader rollout.
We then turn our attention to another Google-related item, which is that YouTube announced this week it is now attracting 1 billion visitors/month, even as (according to my analysis), its U.S. online-only traffic has dropped by 32% year-over-year. But, because comScore doesn't measure mobile access, this isn't an accurate portrayal of YouTube's reach, which is clearly expanding. Colin has further data that adds color to the situation.
Separate, Colin has released his excellent new white paper, "Second-Screen Apps for TV" (free download here)
And a reminder to sign up for "Sizing Up Apple TV" a free video webinar on April 2nd featuring Brightcove's Jeremy Allaire and me.
Listen in to learn more!
(update - the correct pronunciation of Olathe, KS is "O lay the" (thanks Frank Hughes!).
Click here to listen to the podcast (18 minutes, 57 seconds)
Here's an eye-popping data point from last week's comScore online video rankings report for Feb. '13: YouTube's total of 11.3 billion monthly views were down 32% vs. Feb. '12 when it had 16.7 billion views (see chart below). But lest you think viewers are fleeing YouTube, the perennial 800-pound gorilla of the online video market, what really appears to be happening is that a sizable chunk of viewers are shifting their viewing to mobile devices, which as I understand it, is not counted in comScore's data.