Table of Content

THE CLOSED ECOSYSTEM OF CONTENT DISTRIBUTION

Netflix evolving into an Internet streaming company from rent-a-DVD business has made every player in the video eco-system think about its business model, its distribution strategy, and question its viability. According to Sandvine, a network policy solutions provider, Netflix streaming accounts for over 29% of Internet traffic during peak hours, and according to Netflix, 61% of their total subscribers (23 M as of Apr 2011) stream content.

Content owners (CBS, NBC, Warner Bros, Disney, etc) have realized the potential of Internet distribution and Consumer Electronic (CE) device convergence, and are striking alliances with Internet distributors such as Netflix while embarking on content distribution themselves for additional revenue.

Cable companies (Comcast, Time Warner, Cox, etc) are worried about "cord cutting" - the phenomenon of their subscribers cutting the cable subscription and replacing it with Internet offerings such as Hulu and Netflix. As a result, cable operators are making their services attractive by offering cable content on non-cable devices such as PCs, mobile phones, and tablets. CE device makers (game consoles, connected TVs, DVRs, blu-ray players, mobile phones, tablets, etc) have announced software development kits and app stores to join the frenzy of bringing various multi-media content onto their platforms. At last count there were over 100 (and still growing) CE Internet capable devices with at least that many software development kits.

And finally consumers have joined in this bandwagon to expect any content on demand at any time, on any device, and at any place.

The following picture depicts the video ecosystem that has been around for the past 30 to 40 years. As is evident in the picture it is a very structured and closed ecosystem with two companies controlling over 90% of set top boxes, with five operators controlling over 90% of distribution and only branded content being available to consumers.

In this closed ecosystem operators made money through subscription revenue from subscribers and ad dollars through advertisers. This money was used to pay for the content. In this model there was no competition within the cable industry, however there was competition among cable, telecom, and satellite operators.

While the above depicted closed ecosystem will continue to exist for the foreseeable future, an Internet based open ecosystem is rapidly evolving which is creating seismic shifts in the video business as discussed earlier. As shown in the following picture, with open Internet distribution, consumers can now access any content (branded, semi-professional, and UGC) through a myriad of CE devices at any time and at any place.

This evolving open ecosystem is also having wide ranging implications on the revenue models and competitive landscape. The biggest change this open Internet distribution model could trigger is competition among various cable operators who until now could not compete with each other as their physical assets were geographically distributed with no overlap. However with the Internet, every cable operator has access to every other cable operator's subscribers. This ensuing competition will ultimately be beneficial to subscribers.

Also, in this new landscape, content owners have a wide array of distribution partners to work with. Besides the traditional (cable, satellite, telecom) distribution methods they also can leverage mobile operators, pure-play Internet content providers (e.g. Netflix, iTunes, Hulu), and use their own portals (ABC, Disney) to distribute content. To a large extent this is possible because of unfettered innovation on the CE device front - from mainly two set top box manufacturers to over hundred devices across various categories (TV, mobile, PC, tablet, game consoles, etc). As an example Starz Entertainment (premium movie producer and distributor) distributes movies through Netflix on over 500 different CE device SKUs!

This surely is an exciting as well as frustrating time for everybody involved in figuring out what monetization schemes and platform technology standards will emerge as winners, and position their assets and capabilities accordingly. While it will take some time for the dust to settle and winning platforms to emerge, content owners in the interim need to have a presence on these Internet connected CE devices (shown in the above picture) to reach their subscribers.

Companies like Netflix with enormous financial resources and deep technical expertise have developed client solutions on various platforms themselves. However, majority of content owners may not have the financial resources or technical ability to invest in various device technologies. They need to consider the following for effective distribution:

  • What are their audience demographics and what set of CE devices are required to reach their audience maximally?

  • Do they have the UI design and embedded software implementation capabilities to build the front-end applications on these various CE devices?

  • Which of the protocols (HLS or Flash or Silverlight) for streaming is desired?

  • Should they use adaptive streaming?

  • What is the optimal number of video encodes required to reach the maximum number of CE devices?

  • What about DRM?

We'd be delighted to discuss this and your current strategy in video content management and distribution at Xoriant. Do drop us an email at info@xoriant.com.