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“Harming the Core Business”: The Precarious Future of Video Streaming

Phillip Dampier May 3, 2012 Competition, Consumer News, Online Video, Video 6 Comments

Wall Street analysts are predicting the end of free video streaming in the near-term as media and cable companies regain control over online content for themselves.

Cable companies are partnering with content producers to move a growing amount of streamed video content behind paywalls in an effort to protect their core business profits.

The trend is evolving so rapidly, analysts like Laura Martin with Needham & Co. predict the end of free streaming is imminent.  Either customers will pay upfront or use TV Everywhere “authentication platforms” that require evidence of a pay television subscription before being able to watch.

Craig Moffett, an analyst with Sanford Bernstein, perennially sees cable operators as the most likely winners in the billion-dollar entertainment battle.

“They’re winning the broadband wars,” Moffett says of the cable industry. “Broadband is increasingly the flagship product, not the video distribution business.”

Cable networks and program producers are growing increasingly alarmed at the impact video streaming services like Hulu and Netflix are having on their bottom lines.

Case in point: the fall of Nickelodeon, a popular children’s cable network that used to guarantee high ratings and lucrative ad revenue.  Recently the network has fallen off the ratings cliff.  Some careful analysis found the reason why: Netflix.  Nickelodeon, along with many other cable networks, licensed a number of their series to Netflix for on-demand viewing. In households with young children, parents increasingly choose the on-demand Netflix experience for family viewing over the traditional cable channel.


That’s a major problem for content producers and networks, and Moffett quotes industry insiders who predict licensing deals for Netflix streaming will increasingly not be renewed (perhaps at any price) as networks retrench to protect their core business.  What is left will soon be behind paywalls, limited to customers who already subscribe to a pay television service.

That line of thinking is already apparent at Time Warner (Entertainment), Inc., where CEO Jeff Bewkes rarely has a good thing to say about Netflix.  His company refuses to license a significant amount of their content for online streaming because it erodes more profitable viewing elsewhere.

Time Warner only licenses older content and certain “serialized dramas” that have proven difficult to syndicate on traditional broadcast television or cable outlets.  But the company keeps kid shows to itself and its own distribution platforms, like Cartoon Network.

When it does let shows go online, it wants them behind paywalls.

Bewkes applauded Hulu’s recently announced plans to move its service away from free viewing.  Authenticating viewers as pay TV subscribers before they can watch “makes sense” to Bewkes.

“Hulu is moving in the right direction now,” Bewkes said.

Big media companies do not want significant changes to the viewing landscape, where major networks front the costs for the most expensive series, and cable networks commission lower budget programs and repurpose off-network content.  Pay television providers bundle the entire lineup into an enormous package consumers pay to receive. That is the way it will stay if they have their say.

“Just because consumers would rather get individual channels a-la-carte, on-demand, and streamed — only what they want to pay for — [if they think] that is inevitably the way the world if going to evolve, not so fast,” Moffett said. “It may be the way consumers want it and it may be the way technologists want it, but the media companies have a say here.”

“There is no way they are going to voluntarily unbundle themselves,” Moffett said.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Moffett on Cable Operators 4-30-12.mp4[/flv]

Craig Moffett talks about the current state of the media business on Bloomberg News.  He sees trouble ahead for online video streaming, as powerful media and entertainment content distribution companies reposition themselves to better control their content… and the revenue it earns.  The big winners: Cable operators, Hollywood, and major cable networks.  The losers: Consumers, Netflix, Hulu, and free video streaming. (11 minutes)

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Martin Sees End of Free Streaming TV Content 5-4-12.mp4[/flv]

Laura Martin with Needham & Co. predicts the imminent demise of free video streaming. Media companies can’t handle the loss of control over their programming, and the erosion of viewers (and ad revenue) it brings.  Martin tells Bloomberg News she sees a future of paywalls blocking access to an increasing amount of online video content.  (5 minutes)

Currently there are 6 comments on this Article:

  1. tacitus says:

    Good article, and I’m not surprised the cable networks want that big fat check coming in from consumers every month — it’s a lot easier to divvy up that revenue stream than to battle for eyeballs on a show-by-show, or channel-by-channel basis.

    I suspect they’re only staving off the inevitable though. Consumers clearly love on-demand programming, and someone is going to cater to them, even if that means supplying pirated copies online. I cut the cord a couple of years ago, and I now consume between 30 minutes and an hour of (legal) Youtube content a day. Most of it is video blogging of various types but several companies are now experimenting with developing more traditional content online. Early days, yes, but it’s coming.

    I think in the end the content providers are going to have to cut the cord themselves, and start providing packages directly via broadband. A $12/month HBO package alone could tempt me, but there isn’t a hope of me spending $50 or $70 on cable just so I’m in a position to buy the $12 HBO option.

    It may not happen soon, but it will eventually.

    • I think we could free up a ton of cable spectrum deleting about 150 channels on the lineup and building their original and repurposed programming into an ad-supported on-demand channel. So instead of running 150 24/7 channels, the cream of each network’s crop of shows would be available, with ads, for free on-demand viewing. Viewers get all the same shows they would otherwise, without all of that satellite spectrum and wasteful bandwidth occupation.

      If I want to watch TruTV’s Queen of the Obvious — criminal profiler Dayle Hinman on “Body of Evidence,” featuring her marching all over the Everglades in high heels telling me things like “it’s clear the person who chopped this woman’s arms and legs off is disturbed,” and “all of this blood suggests this is a crime scene,” I should be able to do it on-demand.

      But I wouldn’t pay $12 for it.

  2. Anonymous says:

    In my personal opinion cable should be free.

    In a 30 minute program a good third of that is commercials. Guess what, we are paying to watch commercials as well.

    Either provide cable for free with commercials, or pay those high exorbitant cable prices without commercials. It is such a nice scheme to get revenue from both the advertisers and the consumers. No wonder why they are rolling in the dough.

    Thats why people prefer watching online, you get a cheaper bill and little to no commercials. Thats why online video viewing is such a big hit.

    • me says:

      I remember the day they switched over. It sucked. They used to tell us we were paying extra for it because it didnt have them…

  3. AP says:

    “Case in point: the fall of Nickelodeon, a popular children’s cable network that used to guarantee high ratings and lucrative ad revenue. Recently the network has fallen off the ratings cliff”

    And why is that Nick? Because all you show is ALL SPONGEBOB ALL THE TIME! Back in the 90’s the cartoons were so interesting and there is always something new and different, but all they show now is SpongeBob 4 HOURS A DAY! You want the ratings back Nick, how about getting off your lazy a## and create some new cartoons and not show that annoying Sponge 4 hours a day. It was OK in the late 90’s to mid 2006 but now it is really annoying now. I don’t know how 8 year old kids can take this!

    • Yes, I agree with this big time. If you look at all the diginets out there (Discovery this or that, the variations on Nick, etc.) they all time shift the same shows around program length ads for pornographic exercise equipment, silly get rich schemes, and celebrity-endorsed diamond surface cooking vessels.

      Once you have a few core shows people want… they want them on-demand and will go in search of them. Why would anyone want to watch the live stream with the massively packed ad loads.

      However, I disagree about kids being upset with repetition. Some kids in our extended family will watch dump trucks and other construction equipment videos until the DVD spin motor burns out.

      I keep telling them it’s all staged. If it was a real documentary video about construction crews, two guys would be doing the work while the other 15 stand around watching and talking to each other. 🙂

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