On-demand video streaming services threaten traditional cable, but the large fragmented field of competitors provides an opportunity for a major company like Apple to unify the market.
Media-Mind is our column charting how technology’s opportunities and challenges transform traditional media and entertainment, for better or for worse.
Streaming pioneers like Netflix and Hulu have come out of the box strong to provide on-demand services that offer a variety of movies and television shows for a monthly fee. But they hit a major obstacle, with the stinginess of content providers licensing rights to their movies and TV programs. This has exposed a content shortfall making their services incomplete and leaving consumers to wrestle with which one to pick, or stick with cable subscriptions to have access to programming.
The streaming TV market’s fragmentation has made it difficult for a leader to emerge from the pack, setting the stage for a major company like Apple to make noise with a service of its own.
What’s Wrong With This Picture? Hollywood Clamps Down
For consumers, services like Netflix and Hulu are ideas that are easy to get used to. Users can pay a small monthly fee and watch their favorite movies and shows from almost anywhere, whether it’s on their television, smartphone or tablet.
For studios and content providers, however, these same services represent a disruption to the way they have conducted business for years, making them skeptical of handing over their programming to potential competitors.
In television, major networks like ABC, NBC, CBS and FOX granted the rights to several of their catalog shows. However, newer episodes of current programs are off-limits to companies like Netflix. Viewers who know their shows will be online the day after they air are viewers who are less likely to watch programming live, cutting into network advertising dollars.
Movie studios are also hesitant to make licensing deals that give any on-demand service the right to stream their newer films, fearing it will cut further into DVD and Blu-ray sales. DVD’s reaped $20 billion in revenue for studios in 2006, a number cut nearly in half in 2011, thanks to the digital revolution.
Finally, cable providers pay channels like HBO and Showtime directly for the programming they produce. These stations generate revenue from DVD sales of their shows and the contracts they hold with cable companies. A company like HBO could give Netflix the rights to its programs, but it would be doing so at the risk of damaging its lucrative relationship with cable providers across the country that pay to broadcast the station.
What’s Happening? Too Many A La Carte Services
As content providers clamp down on licensing their TV and movies to Netflix and other services, they’re also attempting to offer their content digitally in a way that they can control. Studios are embracing Ultraviolet, a new system that allows people to buy a movie in-store but also keep a copy in a digital storage locker. Networks are offering new episodes of their shows online on their official websites while attaching their own ads, and cable companies like HBO have released companion apps and websites like HBO Go that can only be accessed by cable subscribers paying for access.
However, Hollywood’s own solutions haven’t yet gained traction with consumers as they’d like. Not many titles are on UltraViolet, and cable’s own apps and websites can only grow as large as their subscriber base, failing to draw in consumers turned off by expensive cable subscriptions.
As a result, the market for accessing content digitally has become severely fragmented. Users can’t simply subscribe to Netflix and watch all their favorite programming. Instead, viewers must identify the source of the content they want to watch and hunt down the right avenue in the market. Watching content on-demand is simple and easy, but it is becoming increasingly frustrating, and often times expensive, for customers to find the wide range of content they want.
A Golden Opportunity for Apple to Fix the Mess
The disarray of the market offers a golden opportunity for a company with financial clout, an established history in selling content digitally and a tremendous platform to bring all of their programming to one place. That’s why the future of digital video is Apple’s for the taking. The Cupertino, Calif.-based tech giant is reportedly already in discussions with studios, and while those talks are meeting some resistance, the company has a proven track record that could be a difference maker.
Apple saved an industry that was running from the digital age once before, when it introduced iTunes. By striking deals with every major record label, Apple was able to put all of customers’ favorite music in one place, making iTunes a formidable platform. The company has shown that offering content in a digital space can be wildly successful if done right, and there is no reason to believe it can’t be done again now.
Creating an on-demand video library would certainly be a larger undertaking than iTunes and music, but Apple is in a much better place now than it was when it saved the music industry. The company has billions of dollars in the bank, is one of the most recognizable brands in the world and is the maker of some of the top-selling media consumption devices on the planet. In addition, Apple already has the biggest hub of credit card info on the Web with more than 200 million people registered for iTunes accounts.
Apple is the perfect company to create an on-demand video service that will allow users to say goodbye to cable. All the company has to do is convince content providers and make it worth their while.