Who wins and who loses in the video on-demand wars?
The on-demand market is finally here
Video-on-demand is really a thing of the 1990s. Industry pundits have forecasted the demise of the linear TV market for almost 20 years, but the multi-channel pay-TV business model has proven remarkably resilient. The growth spurt and increased profitability with the move to digital distribution over the past 10-15 years have given new life to business models, which are more than 30 years old.
At the same time, on-demand technology has failed to deliver a truly attractive consumer experience, firstly due to expensive and limited technology, and recently due to limited content offerings. It’s been the rule that industry analysts revise growth forecasts of the VoD forecasts downwards in annual industry reports.
Now, we finally see that things are changing. In this article I will provide some key factors behind the development.
Abundance of TV app technologies
Five years ago, VoD was essentially a PC phenomenon. Sure, some of the more progressive cable companies and telcos had launched video on demand services via their latest set top boxes, but the services were expensive and only available to a limited subset of consumers. Over the past 2 years, we have seen a revolution in consumer electronics equipment that can access true on demand services.
Firstly, we have seen the emergence of the tablets, which finally bring an attractive personal video experience for long form content. Secondly, all major consumer electronics manufacturer have launched so called Smart TV devices allowing TV apps to connect directly over the Internet to on demand services (so called over the top services, OTT).
And thirdly, and most importantly over the past 12 months, Xbox and Playstation have opened up their platforms to allow third party VoD services to deliver services to their customers. Suddenly, VoD providers can reach several 100 millions consumers in the living room via a branded experience controlled directly by themselves!
Critical mass opens up the content ecosystem
Consumers have always been annoyed with the fact that they cannot find all content everywhere, even if they’re willing to pay for it. The fact of the matter is that content is not a commodity. Premium content is unique and content owners run their business to maximise profit. Historically, maximisation of profit has been to protect retail revenue streams, as well as linear TV licensing deals.
VoD service providers have not been able to compete on the content market, which results in weak back-catalogue content offerings and corresponding slower uptake of consumers. The industry ecosystem effectively protects powerful cash-rich incumbents and makes the investment costs for new entrants incredibly high.
Over the past year, most content companies are starting to realise that they will very soon be able to make more money by licensing the same content to more VoD service providers, rather than closing exclusive deals with only one provider on a market. This will improve all market offerings, which will in itself accelerate growth and consumer uptake.
New entrants give increased competition
Most TV markets are controlled by a few major distributors and a few major broadcast companies, sometimes owned by the same group in a vertically integrated company that can maximise profit in ways that border on monopoly. By controlling the value chain it’s easy for them to lock out smaller competitors with long agreements with consumers and content providers.
With the exploding number of consumer devices offering direct distribution over the top and the more open content markets, we suddenly see new entrants to the VoD space everywhere. Established international VoD companies like Netflix and LoveFilm compete with local players like Maxdome and BlinkBox.
Online video providers like YouTube are experimenting with long form video. Device manufacturers like Apple and Sony offer their own VoD services. TV operators like Telstra and Sky are launching their own OTT VoD and finally we see premium TV channels like HBO and Canal+ launching direct to consumer services in various territories around the world. Competition for online video consumption has never been higher.
The on-demand wars
So, we will see a rapid growth of consumer devices capable of premium video, an increased availability of attractive content and a range of players offering services. This will lead to an almost perfect storm in online video, which will benefit the consumer and create huge industry growth over the coming 3 years.
We will see aggressive marketing, price pressure and constant innovation in features and functions to differentiate with competition. New business models and partnership will emerge, and new technologies will appear frequently. The winners will be the content owners, who will be the arms dealers in the emerging war in the global video on demand industry.