In an interview at Lionsgate’s first investor day, Liberty Media chairman John Malone praised Netflix as having a “nirvana business model” while calling out traditional pay-TV distributors for being “asleep at the switch” as their legacy “toll gate” video business models were disrupted. Malone highlighted Netflix’s direct-to-consumer, global scale and complete control as key benefits.
However, Malone wasn’t all doom and gloom about traditional pay-TV distributors, which he sees as morphing from being “video delivery businesses” to “connectivity businesses.” Malone thinks this change in mindset will lead to distributors breaking with tradition and offering premium networks such as Starz in combination with broadband, as opposed to being available only on top of multichannel bundles. But he would not provide any timetable for when this shift might occur.
thePlatform’s mpx system has been chosen by Parsifal Entertainment Group for backend video management and publishing for STARZ PLAY Arabia, a new SVOD service in Middle East and North Africa markets. Parsifal is a Swedish media company that STARZ tapped a year ago to assist with its international rollout.
I'm pleased to be joined once again by Colin Dixon, senior partner at The Diffusion Group, for the 123rd edition of the VideoNuze Report podcast, for Mar. 2, 2012. This week's podcast has a different format; instead of discussing one topic in depth, we touch on three areas - the new lawsuit against Aereo, Netflix's deal with Starz ending (and whether the "flix" is coming out of Netflix) and UltraViolet's strategy of using discs to drive adoption.
Categories: Cable Networks
Netflix's new deal with Warner Bros., in which it agreed to a 28 day "DVD window" for new releases, in exchange for greater access to WB's films for its Watch Instantly streaming feature and reduced pricing on its own DVD purchases, is further proof that Netflix is squarely focused on the long-term. That's not only smart for Netflix, it's also a win for Hollywood studios and also for consumers.
With 11 million subscribers and growing, Netflix has emerged as one of Hollywood's most important home video customers. This dynamic has only increased recently due to slowing sales of DVDs (down another 13% in 2009) and Netflix's dominance in DVD rentals. Yet Netflix is viewed warily by Hollywood, primarily due to concerns that in the digital age, Netflix could gain too much power over Hollywood's fate. This concern was reinforced by Netflix's deal with premium cable channel Starz, a de facto end-run around Hollywood in which Netflix got streaming access to certain Disney, Sony and Lionsgate films.
As I've pointed out many times (as recently as this past Monday, in item #6), despite the Starz deal and the impressive adoption of Watch Instantly to date, Netflix faces a major challenge in building out its catalog of recent films for streaming use. Part of the challenge is Hollywood's "windowing" approach; in particular, other premium channels like HBO, Showtime and Epix have made significant financial commitments for electronic distribution during certain time periods that effectively preclude Netflix gaining streaming rights. Because much of Netflix's value proposition relies on its vast DVD selection (100K+ titles currently), if its streaming catalog continues to look meager by comparison, then Netflix's goal of migrating its users to streaming delivery over time will be seriously undermined.
That's where the new WB deal comes in. While the companies didn't disclose which titles or how many would be available, my guess is that the benefits of the deal, when it's fully implemented, will be noticeable to Netflix's subscribers or Netflix wouldn't have signed on. While WB is just one studio, if the new deal can be used as a template, Netflix could have a solid plan for gaining more films without paying big bucks. And the studios would get greater leverage against Redbox, which is viewed with even greater alarm by much of Hollywood.
Netflix's focus on the long term is smart strategy, and complements well the company's near-term emphasis on riding the convergence wave by embedding its Watch Instantly software in every conceivable living room device (e.g. PS3, Xbox, Roku, Bravia, Blu-ray players, etc.). It's also a strategy that benefits Hollywood. By creating a situation where studios preserve as much of their DVD sales as possible (allegedly 75% of a film's total DVD sales occur in the first 4 weeks following release), Netflix is helping Hollywood gracefully wind down and milk the DVD business.
Not surprisingly, consumers' first reaction to the deal was sour. Yesterday the Twittersphere was alight with grousing about the 28 day DVD window and how Netflix was "selling out its customers." Some even talked about canceling their Netflix service. I think most of this is idle chatter. Netflix has publicly said that just 30% of its DVD rentals come from recent releases (though it is likely that for Netflix's heaviest DVD renters, recent releases are far more important). In the end, Netflix is making a calculated bet that it can manage the potential subscriber consequences of creating the DVD window in order to benefit its larger goal of migrating its business to online delivery.
If Netflix is right, and it can sign on additional studios to similar deals, then ultimately consumers will win. That's because, as Netflix proves in the value of streaming, it will be able to offer improved terms to studios, resulting in Netflix getting better and better access to films. But this will be a gradual process that unfolds over time. Whereas consumers always "want everything yesterday," the reality is that if Hollywood and Netflix can avoid disruption and instead preserve most of their economics by gracefully transitioning their businesses to digital delivery, consumers stand a better chance of continuing to receive the kind of premium-quality (i.e. expensive to produce) films they value. The demise of the newspaper industry is a cautionary example of what happens when disruption instead prevails and an industry's traditional economics are destroyed.
We are still on the front end of seismic shifts that will alter how Hollywood's films are distributed to consumers. By focusing on the long-term, as evidenced by its WB deal, Netflix is playing an important role in increasing the odds of a successful transition.
What do you think? Post a comment now.
The list of cable networks participating in Comcast's upcoming technical trial of On Demand Online continues to grow. This afternoon HBO and Cinemax announced that initially they will provide 750 hours a month of programming, which will expand over time.
Full length episodes of True Blood, Hung, Entourage, etc, along with recent movies such as Transformers, The Dark Knight, Atonement and classics like Jurassic Park, Speed and Rosemary's Baby will all be available. Some programs will be available in HD and immediately after they're shown on the linear networks.
HBO/Cinemax follows last week's announcement that Starz is on board with the trial, which itself followed the launch announcement that Time Warner networks TNT and TBS were participating. The list will no doubt grow further in the coming weeks.
I've been bullish on Comcast's On Demand Online initiative from the outset, and HBO/Cinemax's perfectly illustrates the power of the model. As the most popular premium TV network, HBO would confer a lot of additional value to its subscribers by making its programs conveniently available online. But to date the only real option for doing so has been to sell them on a per program download basis through outlets like iTunes. The problem is that HBO subscribers end up paying twice for the same content.
On Demand Online gives HBO a mechanism, finally, to give its subscribers online access without additional fees. This is accomplished through Comcast's "authentication," which queries its database to enable online viewing privileges. The upcoming technical trial is intended to prove that the authentication process actually works. It must, as the stakes are quite high when premium networks like HBO are in the mix. The last thing they want is to have unauthorized broadband users watching their coveted shows instead of subscribing to the monthly service.
All of the details of On Demand Online are not yet understood, but I continue to believe that if it's executed properly, it will be a game-changer for the cable and broadband industries.
Continuing VideoNuze's pattern of highlighting relevant third-party research, today I'm pleased to make available for complimentary download a dozen research slides from Starz Entertainment. Many of you are likely familiar with Starz, which owns a leading collection of premium cable networks which have been in the forefront of pursuing broadband distribution opportunities.
Starz participated in an omnibus research study of 5,500 U.S. Internet users (4,000 18+ years-old and 1,500 12-17 years-old) in September-October '08. The survey was administered by market research firm Synovate and the goals were to measure 17 different media consumption activities on 9 different platforms.
Starz research head David Charmatz and members of his team walked me through key findings I think it will be beneficial for VideoNuze readers trying to make sense of the shifting video landscape. I have no financial stake in this research.
Consistent with other numbers I've seen recently, 62% of respondents now watch some online video each week. That compares with 87% for live TV, 46% for DVD and just 38% for Time-shifted TV (DVR/VOD). There's little gender difference among those watching online video; 66% of males watch, 58% of females watch.
"Televidualists" as Starz calls them are a key group representing 18% of respondents who watch long-form media at least once per week either online, on a mobile device or through a media extender like Apple TV or Xbox. This group watched more video on all platforms and down the road I see them as the early adopters who are going to be most open to exploring online/on-demand-only solutions. To keep things in perspective, note that just 1% said that they only watch long-form content on new platforms and not on TV (and some of these may have never watched TV at all).
Importantly 60% of Televidualists are 12-34 years-old, compared to 39% overall. That's of course no surprise to anyone, and it continues to underscore how important it is for all incumbents in the existing video distribution value chain to pay close attention to serving their younger customers flexibly and cost-effectively. All of this and more data is contained in the slides.
Categories: Cable Networks
Over the past several months Netflix has made a series of announcements related to its "Watch Instantly" feature. On the device side, there are new partnerships with TiVo (for Series 3, HD and HD XL models), Microsoft Silverlight (for Mac viewing), Samsung (for Blu-ray players), LG (for Blu-ray players), Xbox 360 and of course Roku. All allow Netflix Watch Instantly content to be delivered directly to users' TVs. Meanwhile on the content side, there have been deals with Starz, CBS and Disney Channel, with more no doubt yet to come.
Our household has been an enthusiastic subscriber to Netflix for years and I welcome the commitment that Netflix appears to be making to Watch Instantly. However, as I pointed out in May, in "Online Movie Delivery Advances, Big Hurdles Still Loom," Watch Instantly is hobbled by its limited catalog, now totaling around 12,000 titles, just 10% of Netflix's total catalog, even after including the recently added Starz titles.
The fundamental problem Netflix is bumping up against in building out Watch Instantly's film catalog is Hollywood's well-established windowing process. Studios have wisely and methodically maximized their films' lifetime financial value by doling out the rights to air them to a series of distribution outlets. These rights unfold in a carefully calibrated timeline and have become wrapped up in a thick layer of contractual agreements extending to all parties in the value chain. It is a system that has served all constituencies well, generating billions of dollars of value. It is also unlikely to change in any material way any time soon.
As such, Netflix, the "world's largest online movie rental service," as it calls itself, is increasingly discordant. On the one hand, growing the Watch Instantly service is crucial to Netflix's long term success in the digital/broadband era but on the other, it doesn't have the ability to offer a competitive catalog that meets consumers' online delivery expectations. So what to do?
My recommendation is for Netflix to incorporate the delivery of TV programming, via Watch Instantly, into its core value proposition. Specifically, Netflix should be making an all-out effort (if it is not already doing so) to secure next-day rights to deliver all prime-time broadcast network programs to its subscribers.
This strategy provides Netflix with many clear benefits and positions it well for long-term success. First, in these tight economic times, it dramatically expands the value of the Watch Instantly feature, turning it into both a bona fide subscriber retention tool to battle churn as well as a high-profile subscriber acquisition lever (not to mention an exciting pull-through offer big box retailers could use in their Sunday circulars to generate traffic).
Second, it is a clever competitive strike against four primary alternative ways whereby consumers can watch network programs on demand: cable-based VOD, a la carte paid downloads at iTunes/Amazon/others, free online aggregators like Hulu/Fancast/others and DVRs (though note the TiVo deal addresses this last option).
A comprehensive Netflix prime-time catalog compares well with each alternative. Against cable VOD it offers familiar, superior navigation plus a viable revenue stream for broadcasters while cable tries to get Canoe ready; against paid downloads, the obvious advantage of being a value-add service; against online aggregators, commercial free delivery; and against DVRs, the lack of consumer hardware purchases and persistent recording space limitations.
All of this should make Netflix a very appealing partner for the broadcast networks. They are getting hammered by ad-skipping, audience fragmentation, quality programming migrating to cable and an inferior single revenue source business model. The prospect of Netflix offering payments for their programs should be well-received. There may be concerns about programs' long term syndication value and also the potential enablement of a new gatekeeper. In better times these might be deal-killers; in this climate they shouldn't be.
Finally, there's the big potential long-term Netflix prize: if it can stitch together a large-scale network of compatible devices for Watch Instantly distribution, it could create a viable "over-the-top" alternative to today's multichannel subscription services (cable/telco/satellite). As I described in my recent "Cord Cutters" post, to really succeed, Netflix would have to eventually incorporate cable network programming. But if its reach is wide and its economics sound, that's within the realm of possibility as well.
But those are long-term issues. For now, while the recent CBS deal is a great start, Netflix should be working double-time to build out a full library of broadcast programs. It would dramatically improve Watch Instantly's appeal and value, while positioning Netflix well for the broadband era.
What do you think? Post a comment now.
It's been hard not to notice the recently growing roster of digital media/broadband video executives who are either leaving their jobs or jumping to other companies.
Among the many recent changes:
Of course there are many more as well.
There's no blanket explanation for all of this movement. Senior executives - particularly those with strong track records in unchartered territory like digital media and broadband video - are always in demand by competitors. And established companies who can't execute or who are losing altitude in their core businesses become fertile ground for executive recruiters. Then there are always personal reasons for causing executive change (family matters, geographic restrictions, etc.).
The whole digital media and broadband space is extremely dynamic. Major incumbents continue to struggle with defining their strategies and how to organize themselves properly to execute. The financial meltdown has caused huge profit pressure, prompting operational streamlining.
Still, I'm hoping that all this executive movement doesn't slow broadband's growth. In particular, prematurely folding a digital operation into an incumbent product area can limit innovation as executives who are primarily focused on the core business and who lack detailed domain knowledge will inevitably shy away from riskier or more complex digital initiatives. I've seen this myself first hand. Broadband is still early in its evolution; hopefully executive change will foster, not hinder, its continued progress.
What do you think? Post a comment now.
This past Wednesday, Starz, the Liberty Media-owned premium cable network, licensed its "Starz Play" broadband service to Netflix. The three year deal makes all of Starz's 2,500 movies, TV shows and concerts available to Netflix subscribers using its Watch Instantly streaming video feature. Very coincidentally I happened to be at Starz yesterday for an unrelated Liberty meeting, and had a chance to speak to Starz CEO Bob Clasen, who I've known for a while, to learn more.
On the surface the deal is an eye-opener as it gives a non-cable/telco/satellite operator access to Starz's trove of prime content. As I've written in the past, cable channels, which rely on their traditional distributors for monthly service fees, have been super-sensitive to not antagonizing their best customers when trying to take advantage of new distribution platforms. This deal, which uses broadband-only distribution to reach into the home, no doubt triggers "over-the-top" or "cable bypass" alarm bells with incumbent distributors.
Then there is the value-add/no extra cost nature of Netflix's Watch Instantly feature. That there is no extra charge to subscribers for Starz's premium content (as there typically is when subscribing to Starz through cable for example) raises the question of whether Starz might have given better pricing to Netflix to get this deal done than it has to its other distributors.
But Bob is quick to point out that in reality, the Netflix deal is a continuation of Starz's ongoing push into broadband delivery begun several years ago with its original RealNetworks deal and continued recently with Vongo. To Starz, Netflix is another "affiliate" or distributor, which, given its tiny current online footprint does not pose meaningful competition to incumbent distributors. With only about 17 million out of a total 100 million+ U.S. homes subscribing to Starz, broadband partnerships are seen as a sizable growth opportunity by the company.
Further, Starz has been aggressively pitching online deals to cable operators and telcos for a while now, though only the latter has bit so far (Verizon's FiOS is an announced customer). Cable operators seem interested in the online rights, but have been reluctant to pay extra for them as Starz requires.
Bob also noted that Starz's wholesale pricing was protected in its Netflix deal, and that for obvious reasons of not hurting its own profitability, Starz has strong incentives to preserve incumbent deal terms in all of its new platform deals.
To me, all of this adds up to at least a few things. First is that Netflix must be paying up in a big way to license Starz Play. I assume this is an obvious recognition by Netflix that it needed more content to make Watch Instantly more compelling (see also Netflix's recent Disney Channel and CBS deals). Since it's not charging subscribers extra, Netflix is making a bet that over time - and aided by its Roku and other broadband-to-the-TV devices - Watch Instantly will succeed and as a result, will drive down its costs by reducing the number of DVDs the company needs to buy and ship. That seems like a smart long-term bet as the broadband era unfolds.
And while I agree that Starz Play on Netflix doesn't represent real competition to cable, telco and satellite outlets today, it's hard not to see it as a signal that traditional distributors are losing their hegemony in premium video distribution. (for another example of this, see Comedy Central's licensing of Daily Show and Colbert to Hulu). As I've said for a while, over the long term, the inevitability of broadband all the way to the TV portends significant disruption to current distribution models. I see Netflix at the forefront of this disruptive process.
What do you think? Post a comment now.
Here's a clever move from Comcast's Fancast broadband portal to create new value for users and generate excitement in the broadband market: this week it is running "Premiere Week," an aggregation of 168 premiere TV episodes. The episodes span series premieres ("Desperate Housewives," "Dexter," "The Office"), season premieres ("Fringe," "Sons of Anarchy," "Crash") and classic pilots ("Dynasty," "The A-Team," "Miami Vice"). It's great fun and a visitor could get lost on the site for hours, as I nearly did.
These are the kinds of promotions that Comcast should be all over. Given its extensive reach and programming muscle, the company has definite - though not insurmountable - advantages over other aggregators to pull this kind of promotion together.
The competition for aggregating premium programming continues to intensify. Business models are all over the board as are approaches for getting video all the way to the TV. For example, last week Amazon launched its pay-per-use VOD initiative which includes a page of info for how to watch using TiVo, Sony Bravia Internet Video Link, Xbox 360, etc. Then yesterday, Netflix announced that it will incorporate about 2,500 of Starz's movies, TV shows and concerts in its Watch Instantly feature, along with a feed of its linear channel. Still other moves are forthcoming.
Comcast's real lever though is unifying its currently siloed worlds of digital TV, broadband Internet access and Fancast. When converged they're a blockbuster; companies like Netflix, Amazon and others cannot replicate this combination. In particular, Comcast, and other cable operators are ideally positioned to bridge broadband all the way to the TV. That's the last big hurdle to unlock broadband's ultimate value. Whether they'll do so is an open question.
Earlier this year Comcast CEO Brian Roberts unveiled the company's "Project Infinity" which suggested Comcast was looking to unify its various video offerings and bring broadband to its subscribers' TV. It seemed like a promising move, though there was no timeline disclosed. Now, nearly 9 months later I can't find any updates on the status of Project Infinity. It would be great for the company to publicly release a progress report or sense of upcoming milestones.
Promotions like "Premiere Week" are a positive step from Comcast, but real competitive advantage for the company lies in launching services which are truly impossible for others to match.
What do you think? Post a comment.
Looking back over two dozen posts in May and countless industry news items, I have synthesized 3 key topics below. I'll have more on all of these in the coming months.
1. Broadband-delivered movies inch forward - breakthroughs still far out
In May there was incremental progress in the holy grail-like pursuit of broadband-delivered movies. Apple established day-and-date deals with the major studios for iTunes. Netlix and Roku announced a new lightweight box for delivering Netlix's "Watch Now" catalog of 10,000 titles to TVs. Bell Canada launched its Bell Video Store, complete with day-and-date Paramount releases, with others to come soon. And Starz announced a deal with Verizon to market "Starz Play" a newly branded version of its Vongo broadband subscription and video-on-demand service.
Taken together, these deals suggest that studios are warming to the broadband opportunity. This is certainly influenced by slowing DVD sales. Yet as I explained in "iTunes Film Deals Not a Game Changer" and "Online Move Delivery Advances, Big Hurdles Still Loom" broadband movies are still bedeviled by a lack of mass PC-TV connectivity, no real portability, well-defined consumer behavior around DVDs and the studios' well-entrenched, window-driven business model. Despite May's progress, major breakthroughs in the broadband movie business are still way out on the horizon.
2. Broadcast TV networks are embracing broadband delivery - but leading to what?
Unlike the film studios, the broadcast TV networks are plowing headlong into broadband delivery, yet it's not at all clear where this leads. In "Does Broadband Video Help or Hurt Broadcast TV Networks" and "Fox's 'Remote-Free TV': Broadband's First Adverse Impact on Networks?" I laid out an initial analysis about broadband's pluses and minuses for networks. I'll have more on this in the coming weeks, including more in-depth financial analysis.
On the plus side, in "2009 Super Bowl Ads to Hit $3 Million, Broadband's Role Must Grow," "Sunday Morning Talk Shows Need Broadband Refresh" and "Today Show Interview with McClellan Showcases Broadband's Power," I illustrated some opportunities broadband is creating. On the other hand, "Bebo Pursues Distinctive Original Programming Model" and "More Questions than Answers at Digital Hollywood" explained how exciting new programming approaches are taking hold, challenging traditional TV production models. Broadcasters are in the eye of the broadband storm.
3. Advertising's evolution fueled by innovation and resources
Last, but hardly least, I continued on one of my favorite topics: the impact broadband video is having on the advertising industry. Over the last 10 years the Internet, with its targetability, interactivity and measurability has caused major shifts in marketers' thinking. With broadband further extending these capabilities to video, the traditional TV ad business is now ripe for budget-shifting. We'll be exploring a lot of this at a panel I'm moderating at Advertising 2.0 this Thursday.
In "Tremor, Adap.tv Introduce New Ad Platforms" and "All Eyes on Cable Industry's 'Project Canoe'" (from Mugs Buckley), key players' innovations were described along with how the cable industry plans to compete. Content providers are being presented with more and more options for monetizing their video, a trend which will only accelerate. Yet as I wrote in "Key Themes from My 2 Panel Discussions Last Week," many issues remain, and with so many content start-ups reliant on ads, there may be some disappointment looming when people realize the ad market is not as mature as they had hoped.
That's it for May. Lots more coming in June. Please stay tuned.