Currently in the entertainment industry, there is a large internal debate going on about streaming online video. Right now, the studios are basically giving it way for free. Not really "free", but free in the Hulu sense, where you watch an advertisment and then you can watch your TV show online. What the broadcast networks have done is effectively moved their repeat business onto the internet, which is good for the broadcast networks since their airtime is more valuable and hardly anyone watches repeats anymore on TV. And for the broadcast networks, the online airing is net positive since its additional revenue without them even to have to host the content. The broadcast networks get a piece of the ad revenue from the stream.
As a content provider, Warner Bros. and the other studios have reason to be concerned. It does cost us money to make that content, and if we are simply giving it away for free (digital pennies), well, that cannot be good for future earnings. So what to do? Right now, since Warner Bros. still has its corporate cable roots, the current strategy is called TV Everywhere, which is cable authentication to watch online TV. This is fine, I get cable, so it's an additive step to authenticate, which is annoying, but consumers will do it to watch the TV they want to watch. The problem as I see it is that TV Everywhere will not be mainstream for 5 more years. And who can accurately predict how we the audience will be watching online TV in 2014? The biggest hurdle for cable is that their technology, both hardware and software, is terrible.
A TV drama today costs a studio about $2 million per episode. At $1.99 an episode for a TV show, we're not making money off of ITunes rentals or purchases. And there is no big slice of online TV advertising revenue either.
So while the entertaintment industry is still figuring it out, leave it to professional sports to successfully figure out a paid subscription model for online video. My own history with this business model was brought to my attention by none other than myBaby Boomer parents. I was quite suprised when I asked my Mom & Dad what they wanted for Father's Day, and they said they wanted a subscription to Major League Baseball's online TV. With MLBTV: http://www.mlb.com/mlb/subscriptions/index.jsp My parents are like most Baby Boomers, they have multiple homes in mulitple states, but they love their baseball. With MLB TV, they can watch the games either on their laptop, or my Dad will hook the computer up to the TV and watch the game that way. And my parents love it. For the MLB, it's a great deal, $20 per subscriber per year. Their demo is twofold, young techno savvy men 15-30 and Baby Boomers. For MLB, the still blackout games online when they are airing on TV in their home markets, thereby preserving their largest revenue stream, which is the TV broadcasts. And if you're an MLBTV subscriber outside of your home area, MLBTV knows your location and will stream the blackout game to you since you're not in your home area. The NFL Network (which also has it's own successful pay TV cable channel), also just announced its very own pay online subscription channel, RedZone TV.
My own personal belief is that online video can be a major revenue generator for the studios. But the devil is in the content. We could charge $500 a year subscription for an online TV video subscription site if you could, for example: 1. Get episodes 1 week before they premiere on TV. 2. Get major feature films 1 day before they open in theaters and continue to stream them thereafter. 3. Download episodes or movies onto a DVD. It all comes down to the quality of the content. No one is going to throw down $500 to see repeats of TV shows from the 90's.
Hollywood studios are in the windowing business, because we're selling the consumer the exact same content over and over again, just in different forms - in the cinema, on DVD, online, on TV. Will there be a huge number of people that will pay $500 per year to get this content, no. But $500 X 1 million subscribers is $500 million dollars and that's a couple of movies or a few seasons of a TV series. Now there's an online paid subscription model I can get behind.
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