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Digital Life : The State of Streaming Media and Entertainment 2011
The future looks bright for streaming media content providers in their fight for consumers' attention.

By James Careless - for Streaming Media Magazine

2010 was a good year for streaming media content providers. For instance, Netflix ended 3Q 2010 with more than 16.9 million total subscribers, up 52% from 3Q 2009’s base of more than 11.1 million. Revenues in the same period were $553.2 million; up 31% from 3Q 2009. These numbers reflect a mix of online and DVD rentals, but Netflix launched a streaming-only subscription service in November 2010, rated at $7.99 a month.

In November 2010, Hulu.com CEO Jason Kilar told attendees of the NewTeeVee Live conference that Hulu is expected to earn more than $240 million this year. “That’s up from $108 million in 2009 and $25 million in 2008,” reported the Financial Times. These revenues “are derived almost completely from advertising on the site,” the Financial Times said, since the company’s paid subscription service, Hulu Plus, only recently opened for business. Like Netflix’s streaming-only subscription service, Hulu Plus costs $7.99 a month.

“The industry is going back and forth between a user-pay and an advertiser-pay model,” says Dave Mcilroy, president of the Vancouver, Canada-based streaming media solutions provider PlayFullScreen.com. Many minor league and high school sports teams use PlayFullScreen to carry and distribute streaming video of their games. “The good news is that consumers are finally accepting the idea that they have to pay for online content, one way or the other,” Mcilroy adds. This realization is aiding Netflix, Hulu, and the many other streaming media content providers now online.

Streaming Media Viewership by the Numbers
A recent snapshot of who is watching streaming video and why was recently released by comScore, the online audience measurement company.

In a nutshell, 85% of people around the world who use the internet watch streaming video. “This percentage has not changed over the past 3 years,” says Dan Piech, comScore’s senior product management analyst. “But what has changed is the amount of video they are watching. The jump in hours has gone through the roof.”

Indeed: In October 2007, internet viewers watched a total of 10 billion video hours. By October 2010, that number had jumped to more than 36.5 billion hours. Although network television programs do command a share of viewer attention, how-to videos, niche-oriented content (relating to hobbies or specific interests), user-generated content, and adult video all have their stakes in the market. “In particular, how-to videos are really attracting a lot of viewers,” Piech notes.

Age remains a factor in determining how much people watch online videos. In the 18–24 age group, 57% watch TV only, 35% watch video on TV and the web (“cross-platform”), and 8% watch online video exclusively. The 25–34 age group is marginally less wedded to old tech: 55% watch TV only, 35% watch cross-platform, and 9% watch online video only. As for the 35–49 age group? As might be expected, the TV-only segment dominates with 75%, followed by just 20% cross-platform and 5% online only. What these figures suggest is that a real digital divide exists among people in their 30s, with many embracing new technology despite growing up in the analog age.

So why are people watching online video, either in tandem with TV or exclusively? According to comScore’s research, “cord cutting” is not the major motivation. In fact, 69% of those surveyed say they watch online video to catch up on missed episodes, 57% do it for the convenience, while 56% watch online video to look at past episodes of favorite TV shows. Only 42% watch online video because there are fewer commercials than broadcast television, a fact that is good news for advertisers looking to jump into streaming media. Twenty-nine percent of those surveyed like the fact that it is easy to discover new shows by finding them online; 13% just plain prefer the online viewing experience, and 9% either don’t have a TV or, if they do, don’t subscribe to cable or satellite.

“In all of this growth, it is worth noting that people are really tuning in to live streaming,” Piech notes. “Sites like Livestream.com and Justin.tv have really caught the public’s imagination.”

Streaming Media and Entertainment Trends
Live streaming is just one of the trends driving content provision online. But it is also a hallmark of what might be called the biggest trend of all: fragmentation. “There are so many different options and niches being supported today, that the online streaming market is fragmenting down to an infinitesimal level,” says Mcilroy. “There is something out there for virtually everyone. This really cuts into the desire of old-style broadcasters to hold mass audiences with their repurposed off-air content. Yes, the viewers are there, but now that there’s lots more to choose from, many are watching web-only content that the TV networks have no stake in.”

“I think the broadcast TV industry is about to experience what happened to the newspaper industry when the web took hold,” says Fred Singer. He is CEO of Grab Networks, which helps clients manage and make money from streaming video. “In other words, streaming media is changing the game. People not only can watch what they want when they want to, but they are also tending toward 2–3 minute ‘video snacks’ rather than old-style bundles of TV segments interspersed with advertising.”

“Broadcasters simply can’t ignore this kind of online content,” he adds. “Like radio when TV came out, they are going to have to rethink their business and content models if they want to stay relevant and profitable.”

On the flip side, StreamingMedia.com EVP Dan Rayburn warns streaming media providers against indulging in fantasies about broadcast television’s demise. “It’s not going to happen,” Rayburn says. “Historically, new media doesn’t destroy old media; it just complements it. When TV took hold, radio didn’t disappear. Instead, it moved away from its diet of comedies and dramas and switched to music and talk. In turn, radio didn’t destroy newspapers, nor will streaming media destroy broadcast television.”

It will be a challenge for broadcast TV programmers to come up with content that can’t be found on the web. This is where 3D television, married to major sporting events and other spectacles, might give broadcasters an edge over their online competition.

The good news as far as broadcasters are concerned? Right now, it does not appear that streaming media is eating into the broadcast TV audience, says Piech. “Our research shows that while online viewing hours are going up, broadcast TV hours are staying stable,” he explains. This means that people aren’t switching one for the other. Instead, they’re just devoting more hours to screen time.”

Streaming Media and Entertainment Challenges
Despite its growth, streaming media is still in its infancy as a commercial business. Many challenges remain for streaming media content providers, on both sides of the business equation.

On the content side—the product that consumers will pay for—current levels of penetration make it difficult for providers to make a living. “The studios generally get 60%–70% of the revenues from Netflix, Hulu, and other such companies,” says Rayburn. “When your penetration rate is only around 1 million–2 million subscribers—not all of whom are necessarily watching a lot of content—it is hard to make enough money.”

On the distribution side—getting the product to paying customers—the current proliferation of proprietary streaming media boxes and the reluctance of some carriers to support bandwidth-hungry streaming video is causing headaches for content providers as well. “Last year, I had four or five streaming media boxes that I was testing,” Rayburn observes. “This year, I have about 20. All of them do different things, and none of them give me complete access to everything that’s online, which is what I believe consumers want.”

Rayburn makes a point of talking to consumers at Best Buy and other major electronics retailers. In doing so, he has found out that consumers see streaming media “as a commodity; that’s the real story,” he says. “They don’t really want to know who makes what, or why, or even really how it works. They just want to take it home, plug it in, and watch what they want to watch—period.”

Taken as a whole, streaming media content providers are dogged by the kinds of problems that go with any startup industry—which is what commercial streaming media still is.

Looking Forward
Challenges aside, the future looks bright for streaming media content provision.

“Netflix will see significant growth in the year ahead, as will Major League Baseball and other specialty services,” says Mcilroy. “Better yet, I think advertisers will finally start to grasp the potential of the streaming media market and put more money into this sector. In fact, 2011 will be a banner year for online advertising.”

“People aren’t going to Blockbuster anymore to get their videos; they’re going online,” echoes comScore’s Piech. “But again, online video is about much more than movies and TV programs. It encompasses a wide range of content choices, and thus provides a lot of business opportunities.”

Useful Advice for Streaming Media and Entertainment
For streaming media content providers looking to succeed in 2011 and beyond, the opinions of the people interviewed here can be boiled down to a few important points:

First, you must offer as much content variety as is humanly possible. This is what people expect from the web, and what they think they already get from cable and satellite. To retain your customers, you must exceed their expectations and keep them very, very happy.

Second, your content must demonstrate clear, easy-to-understand value to consumers. It has to hit them right between the eyes why signing up with your company just makes plain good sense—and benefits them, not you.

Third, the current proliferation of streaming media boxes is confusing to the general public. So whatever platform(s) you select have to be childishly simple to install and activate—and the after-sales support has to be cheerful, fast, and well-informed. (This is not the time to save money by contracting out support to an offshore call center manned by nontechies.)

Finally, your customers do not care about how clever your technology is any more than they will ever stop to sing the praises of their toasters. This is especially true of younger consumers who see digital technology as a ubiquitous commodity that should put their needs first and that requires no consideration beyond turning it on or off. So make your service and the technology that delivers it simple, reliable, and almost invisible. That’s all your customers want.

The Bottom Line
The streaming media content provision industry could be on the verge of a major breakthrough in 2011. The fundamentals are right: The public’s appetite for streaming media is increasing, and content providers such as Netflix and Hulu are seeing this fact reflected in their revenues.

This said, streaming media is about more than TV shows and movies, with much of the growth occurring in niche areas too small for broadcasters to capitalize on. For streaming media content providers, this trend means that they will have to be watchful for new, compelling content as it appears on the web. They must also make their products easy to access, highly attractive, and very competitively priced.

This article originally appeared in the 2011 Streaming Media Sourcebook under the title "Get in the Ring: The state of Media & Entertainment."