Thursday, December 16, 2010, 8:38 AM ET
Yesterday Colin Dixon from The Diffusion Group and I presented a webinar describing our 6 key trends for 2011 in online and mobile video. Colin is one of the sharpest analysts of the pay-TV and online/mobile video industries and we had no shortage of ideas to sort through. Our list is a joint effort, and during the webinar we each presented the 3 trends we felt the strongest about. In today's post I share and explain each one. At the end of the webinar we conducted a poll asking attendees whether they agreed or disagreed with our predictions. I've noted those results in bold font. If you want to download the slides and/or hear more of our detailed discussion, just register for the on-demand version of the webinar and you'll be emailed a link.
1. Google emerges as a key Hollywood partner (Will) - With each passing day Google is getting more serious about the video business, and next year we believe it will start to become a meaningful partner for Hollywood in monetizing and distributing its content. All of the pieces are now in place. Unparalleled online video reach and promotional capability through YouTube, which has maintained a remarkable 40+% share of the online video market. A significant and diverse technology portfolio in content protection (Content ID, Widevine, etc.), devices/OS (Android, Google TV, etc.), monetization (ads, distribution, etc.) and discovery/experience (Google search, YouTube Leanback, etc.). Google has slowly built up its Hollywood relationships, nabbing Netflix's # content executive over the summer and inheriting a raft of important Widevine relationships. Now the focus will turn increasingly execution. The challenge is that Google is still viewed with suspicion (latest example being the broadcast nets stiff-arming Google TV), it lacks a clearly articulated video strategy (e.g. what's up with possibly acquiring Next New Networks?) and a clearly identifiable video business unit leader. Nonetheless, with its bottomless resources, it is poised to become an important Hollywood partner. (Agree - 60%, Disagree - 40%).
2. Netflix strains under spectacular growth (Colin) - 2010 has been a year where everything has gone right for Netflix, and we believe strong growth will continue, possibly propelling Netflix to approximately 30 million subscribers by YE '11 (we assume it will end 2010 at close to 20M, gaining almost 8M this year, making a 10M or so gain next year a distinct possibility). However, Netflix will begin reckoning with its own success in 2 important ways: the arrival (long overdue) of meaningful competition and the new terms on which Hollywood will be willing to do business with it. On the former point, alternatives like pay-TV IP-based solutions plus other aggregation options from Amazon, Best Buy, Apple, Vudu, Comcast, etc. will strengthen. On the latter point, Hollywood executives have been signaling in recent months that they intend to reevaluate how they do business with Netflix, concerned that their expensive content production apparatus is unsupportable on $8-10/mo subscriptions. One option Colin suggests is that we may see incremental Netflix tiers (e.g. Showtime?) from Netflix. How this all plays out is still up for grabs; what is certain is that Netflix will face a much tougher climate in 2011 than it did in 2010. (Agree - 63%, Disagree - 37%).
3. Pay-TV losses mount / cord-cutting theme gains (Will) - There's been no hotter industry topic this year than cord-cutting. The lack of clearly-supporting data has not deterred proponents from talking about cord-cutting ad nauseam and a complete pay-TV meltdown lying just ahead. Absent this data, I've been cautious on the topic (other than suggesting more OTT choices inevitably will lead to some fragmentation), but going into '11, I think a new "perception becomes reality" risk could well materialize. The trigger will be mounting pay-TV subscriber losses. These started over the past 2 quarters, when the industry shed, for the first time, 335K subs, as cable losses weren't offset by telco/satellite gains. This is likely to accelerate next year as Verizon/AT&T network build-outs slow. As sub losses continue, media attention on cord-cutting will grow. That in turn will generate more consumer awareness and buzz, leading more people to try saving $50-$100 or more per month by dropping their service. To combat this dynamic, the pay-TV industry must step up to the challenge both by rolling out new IP-based services and also by communicating its messages around value, choice and convenience far better than it has. For smaller and mid-sized cable operators who are most resource-challenged to upgrade, partnering with Google TV, TiVo, Roku or others will become an increasingly attractive option. (Agree - 82%, Disagree - 18%).
4. No change in net neutrality enforcement (Colin) - Given the hairball that net neutrality regulation has become and the pending Republican takeover of the House, neither of us see a material change in net neutrality enforcement over the coming year. The only thing that could change this would the discovery of a well-founded case of major broadband ISP traffic discrimination (and no, we don't believe that Level 3's accusations against Comcast would qualify on this measure). Net neutrality continues to be a solution in search of a problem. Vigilance is key and the FCC should be prepared to act swiftly and strongly if some misbehavior is unearthed (and with the impressive self-policing nature of the Internet, there's little likelihood that any misbehavior would go undiscovered for long). Colin takes things a step further by suggesting that FCC Chairman Julius Genachowski will depart by the end of next year, either from his own frustration or under pressure due to over-reaching the FCC's mandate, while I'm not quite as sure. Meanwhile, we both see the Comcast-NBCU deal closing, but with stronger-than-expected net neutrality-oriented restrictions attached. (Agree - 63%, Disagree - 37%).
5. Mobile video has breakout year (Will) - Yes, every year someone says this will be the year mobile video breaks out, but there are numerous reasons to believe in 2011 it will actually happen. Most important is the rollout of super-fast 4G mobile networks. As wireline broadband deployment has taught us, fast connectivity is table stakes for video and other apps to flourish. 3G has been good, but 4G, in the 5-12 mbps range, is a big leap ahead. In addition, the massive proliferation of video capable mobile devices like smartphones (iPhone and Android) and tablets (iPad and other Android/Windows version unveiled soon) means tens of millions of people will be able to conveniently access mobile video. Monetization - particularly ad-support - is also firming up for mobile video, evolving nicely from online. A key accelerant is social media, which will continue to drive the dispersion of video consumption. As all these things take root, content providers will flock to the mobile medium, especially providing short-form clips. We envision 1 big mobile video "moment" in 2011 that turbo-charges the medium (e.g. a live, breaking story or something) though it's hard to identify exactly what. (Agree - 73%, Disagree - 27%).
6. TV Everywhere struggles to keep up (Colin) - While we both agree that TV Everywhere and other IP-based services are essential to the future health of the pay-TV industry (see more above), we are both skeptical that the industry is pursuing this as aggressively as it should be. Challenges in content rights, measurement and business model remain, and Colin sees OTT providers like Netflix continuing to gain. My concern is that outside of the largest operators (Comcast, the 2 telcos and the 2 satellite providers), TV Everywhere just isn't a priority. That's a bit of a generalization, but the underlying truth is that the pay-TV industry is still fairly fragmented and small-to-mid-sized players haven't materially backed TV Everywhere. That inconsistency creates a mile-wide opportunity for national scale players like Netflix. The risk for TV Everywhere is that it ends up looking a lot like VOD - deployed mainly by larger operators but in inconsistent, sub-optimal ways, not easily monetizable and relatively content limited. (Agree - 79%, Disagree - 21%).
So that's it. Obviously there are lots of other things happening, such as the continued strong growth of online video advertising, syndication, branded content, independent content, metadata, search/discovery, aggregation and so on. Each day brings another new twist in the fast-moving worlds of online and mobile video. As 2011 unfolds we'll check in on how our trends are playing out, and what new ones should be on your radar.
What do you think? Post a comment now (no sign-in required).
(Note - the links have been updated so the webinar recording and slides can be downloaded)
Aggregators, Broadband ISPs, Cable TV Operators, Mobile Video, Predictions, Regulation, Satellite, Technology, Telcos
FCC, Google, Net Neutrality, Netflix, TV Everywhere