Is Free Video on the Internet Over?

If Consumers Would Only Cooperate, Everything Would Be Just Fine.

Monetizing Video Content:  How will we consume digital video entertainment in the future

from InStat Research and Analysis

November 2, 2009

For years, the word “disruptive” has been synonymous with the Internet, and with IP technology, in general. Industry analysts have predicted that business models must change in the future. For the newspaper and magazine industries, the future has arrived. And it is knocking on the front door of the digital entertainment industry. But, rather than seeking to alter business models, digital entertainment content producers are circling the wagons, preparing for a fight.

Numerous industry executives have recently proclaimed that the era of “free” content is over. At a Broadcasting & Cable/Multichannel News event, News Corp President Chase Carey was recently quoted as saying “I think what we need to do is deliver content to consumers in a way where they will appreciate the value.” Clearly the problem is that we consumers don’t appreciate the value of media content enough. If we did, then we would be eager to buy expensive DVDs for our home libraries. We would be attentive to TV ads, no matter how many they throw at us, or how repetitive they might be. And we would gladly pay multiple times to acquire the same video content in different device formats. What the industry is saying is: if consumers would only cooperate, everything would be just fine.

It doesn’t stop there. Despite all of its success in capturing viewers, even Hulu is considering charging subscription fees. Why not? Old TV shows, like McHale’s Navy, are considered classics! It is time that the under 50 years-old crowd learn to appreciate the value of black and white TV programs, featuring actors whom few have heard of before.

Rather than emulating Hulu’s innovative advertising strategy, the TV Everywhere initiative from Comcast and Time Warner plans on using the age-old broadcast TV advertising format for Internet TV. Not only will they insert all those mind-numbing commercials, but they also plan on disabling the fast-forward function. Nothing is really changing, except for the viewing device.

Is this the way to save the digital entertainment industry? We at In-Stat have our doubts. It is true that consumers will pay for high-value content. Unfortunately, most content falls into the “see it once” category. And there lies the rub. On-demand content viewing or even ala carte selection of TV channels puts the consumer in control. For the digital entertainment industry, that is a frightening thing.

Content producers, payTV operators and device manufacturers are all trying to affect what the future digital entertainment market will look like. Everyone wants the future to look like the glorious past. Will over-the-top (OTT) video suppliers gain long-term market success? In the future, will the devices we own drive what OTT services we use? Or will pay-TV service providers control the content that is delivered to our TVs, PCs and mobile handsets?

In November 2009, In-Stat will be introducing a new research report entitled: Monetizing Video Content: Clash of the Titans, #IN0904403CM. The report will take an in-depth look at the conflicting goals of each industry segment, and assess how successful each will be in molding the way we consume digital video entertainment in the future. In exchange for more cooperation, let’s hope we consumers get something in return.

In the meantime, be sure to check out all of In-Stat’s Consumer Media and Content research online at:

http://email.in-stat.com/cgi-bin4/DM/y/hBVFr0HWFjC0K560E2ji0EL

Keith Nissen, Principal Analyst
keith.nissen@reedbusiness.com