On Monday, Amazon officially opened up a streaming service for Amazon Prime members. Then yesterday came the rumor that Google was about to enter the fold with a streaming video service delivered through Youtube. That was quickly shot down. Regardless, the quarrel that Netflix and Hulu started is going to explode into a war with multiple more players joining. (I think Google will eventually, either though subscription or fully ad subsidized.)
Which services will win out? It's going to come down to accessibility, content and price. Can one service sign exclusive content deals? Or can one service provide a significantly better user experience? With those two being equal, price then takes center stage.
My personal biggest gripe with my currently-on-a-hiatus Netflix subscription was that I never really knew what was available. [Content] Most of the time I would search for something that I would want to watch, not find it, and settle for something else. As silly as it sounds, the "unlimited streaming" aspect gave me the confidence that I could watch anything (at least couple years old) that I wanted. That was far from the case.
The lack of having exactly what I wanted wasn't a dealbreaker, mind you. Netflix has a lot of content, and popularity does not equate to quality. I'm all for discovering great yet obscure movies. The problem was that the process of "discovery" was too cumbersome and time consuming. [Accessibility] How I longed for the ability to sort by Rotten Tomato ratings or IMDB scores. I don't for a second doubt that I could have gotten $8 of value out of Netflix, but the fact of the matter is that I simply did not. For what it's worth, I fully expect to be pulled back into Netflix within the next year or so. The reason: [Price]. $8 is less than the cost of a single box office movie ticket, and for guys movies always cost 2x the sticker price.
Speaking of value, Amazon has the benefit of being able to bundle the streaming subscription with its Prime shipping services. "Free" (in quotes because it requires a membership) 2-day shipping is one of the greatest things on the internet. If Amazon upgrades it's pitiful streaming collection to be somewhat comparable to Netflix it has won me (and everyone I preach to) over. Don't get me wrong though, this doesn't need to be a winner take all market.
If these streaming services replace cable budgets, there is ample room for multiple $8/month subscriptions. And in the scenario that competing services each have exclusive content deals, the services really start to resemble our traditional concept of "channels." This will all come together beautifully when we start consuming all these services via set top AppleTVs and GoogleTVs.
What's clear is that this is a big market and a big opportunity. And all of the tech heavyweights are going to weigh in. Even Microsoft, who looks like they're sticking with the Xbox for living room domination. Sidenote: I really hope Microsoft plans on entering the tablet market soon and in a big way. No, Windows 7 does not count.
In other news the S&P500 lost 1.8% for the week--while Netflix dropped ~10%. Isn't a little bit of competition lovely?
Previously, I opined on how Apple was really fighting for the consumer with their new in-app subscription policy. I may not have been completely clear on that. While demanding that content providers offer subscriptions through iTunes/Apple =fighting for the consumer, taking 30% of all subscription revenues = taking care of business.
There has been a big backlash over this 30% figure. It's not too foreign of a concept as app developers are no stranger to having 30% taken off the top of all their sales. This really isn't a question of right or wrong or Apple being the evil big business. There is nothing ethically or morally wrong about charging 30% for operating in their app store. The question is whether or not it is a smart business move.
To me this ultimately comes down to two questions:
-Will content publishers all flock to Google and whoever else decides to enter the market (we're waiting for you Palm and Microsoft) and cut off Apple?
-Will this force prices out of the range of acceptability for consumers?
In order for Apple to change its policy it needs to feel threatened enough to react. This will take big guts and an orchestrated effort to pull off. Essentially all the big content providers will need to back Android and refuse to distribute via iOS. In essence, having an iPad would then be similar to buying a TV that cant watch network TV. It would be a real deal breaker for many. Would this ever happen? What's the probability of picking a lemon Starburst out of package of Fave Reds?
The 30% tax was announced with magazine and newspaper subscriptions in the headlines.
Record companies faced a similar scenario when they were very unhappy with Apple demanding $0.99 song downloads through iTunes. Boldly, the record companies.... stomached the price enforcement. Or at least enough of them did to keep the iTunes ecosystem as the top dog. Business models were forced to shift. Just like how the traditional concepts of album sales were thrown out the window, Apple is laying to rest the notion that publishing companies get free access to customer information to market the daisies out of you, . Not until Amazon and Walmart arose as legitimate competitors did Apple bend it's pricing policy.
Again we are faced with a similar predicament. Established media companies feel as though they are being bullied by Apple's pricing policies. And as long as just enough of them comply with Apple (hello News Corp) then Apple will come away looking smart and savvy.
Publishing companies have no choice but to accept their circumstances. Not only is growth in traditional subscriptions dying out, but each iPad user is already a convert to the dark (digital) side. These days non-tech savvy consumers simply need to mosy on over to the App Store to see apps like Flipboard and Pulse atop the most downloaded charts. A taste of the free and increasingly iPad friendly content is all many will need to stop them from shelling out for paid offerings from "big name" publishers.
Streaming subscription services are the true main characters.
With all due respect to publishing companies, I feel the issue of greater concern is what the 30% cut will do to streaming media subscription services, such as Hulu Plus, Netflix, and [blank] music streamer that ultimately arises, that aren't as easily substituted. If Apple demands their 30% is a $7.99 Netflix unlimited streaming plan even feasible still? These services have 3 choices:
1) leave the app store
2) stomach the price increase
3) pass on the marginal cost to the consumer
Scenario 2 kills profitablitiy, and 1 & 3 have worrying effects on the top line. Even if Netflix raised the price to $9.99, thats still less revenue in their pocket after Apple's cut chops it down to $6.99. Are consumers willing to pay more than $10 for a Netflix subscription?
Apple also added a very important and stifling detail: the in-app subscription price must be the same as the regular advertised price. This is a wonderfully veiled tactic to encourage users to use the in-app method and allow Apple to take their 30%. If streaming companies want to survive, they're going to have to pass on their 43% cost increase to the consumer. And if they want to comply to app store rules, they will have to coincidingly raise their traditional subscription prices outside of iOS. Potentially, Apple just made everything 43% more expensive to consumers. There are probably ways around this, such as "discount codes" that can be applied outside of iOS. But the MSRP is the MSRP, and it sounds like any service that stays in the app store will require a higher MSRP to stay alive.
This also forces streaming companies to ask themselves if it makes sense to charge Android users a different price than iOS users. While Apple can enforce iOS and traditional subscription price uniformity, I can't imagine that they could also regulate prices on other platforms. Would saving a couple dollars a month per subscription be enough to sway users towards Android and put enough competitive pressure on Apple to lower the 30% rule? I think ultimately subscriptions will be cheaper on Android than iOS. As different platforms, Android and iOS really are disparate markets. Just like prices for goods in Europe are often higher than the US due to the VAT, so will prices for subscriptions in iOS due to the "Apple Tax." Each market essentially is a level playing field with distinct pressures. While price uniformity across platforms seems to make the most initial sense, with sufficient competition in Android, I would expect prices to largely mimic iOS save for the extra 20% that consumers have to pay to Apple.
The waters get a lot murkier once we consider that Apple is also in the digital media business with iTunes and the very likely scenario that they finally offer a streaming subscription based iTunes. Perhaps Apple sees Hulu and Netflix as unncessary middle men. Why go from content --> Hulu/Netflix --> Apple --> consumer? Apple already has relationships with content providers--time for some disintermediation. Now we realize though that the playing field isn't level if Apple is competing on its home court. In this situation, Apple is engaging in some anti-competitive policies as they clearly don't have to deal with their own 30% and consequently could easily undercut the competition. I am no legal scholar, and while I can confidantly describe this hypothetical as simultaneously "anti-competitive", acute and cunning I cannot pass judgement on its legality. Still for what it's worth, it would greatly surprise me to see the Department of Justice/FTC interfere while the "market" at question is so nascent.
On the Hot-Crazy Scale, Apple is in good shape.
Apple is jumping a bit to the crazy side on the hot-crazy scale (see video below) in demanding a 30% share of subcription revenues. You really need to have watched the video I linked to understand what I mean. Now we consumers get to decide if their products hot enough to withstand the backlash (if any). If recent iOS App Store vs. Android Market revenue numbers are any indication, $1.7 billion and $102 million respectively), they definitely are. Also remember that consumers aren't aware nor could they care less about Apple's 30% or Google's more publisher friendly response. All that they know is that the iPad recently added one-click subscriptions (sweet!), while true Android tablets are yet to exist. While Apple was kind enough to allow app-developers until June to institute the new in-app subscriptions, it also allows them to sell tens of millions of iPad2s before publishers/streamers react. By then, there will likely be too much gravity towards iOS for anyone to scare Apple into slimming down the 30% tax. (Prediction: if it gets lowered, I say 20% is the floor).
Make no mistake about it, the iPad and iOS are truly disruptive technologies. They're disrupting old media and new media alike.
Today Apple announced a new feature for iOS devices that has me all riled up: in-app subscriptions. Although there are a lot of contentious issues with Apple's subscription policies, the really exciting part is what this foreshadows. I think subscriptions will be huge--for Apple TV.
Media execs have a right to be upset over being forced to manage their subscriptions through Apple. Losing 30% of their revenue to Apple is no small matter. In addition to that, media companies miss out on highly valuable customer data and are often begrudgingly persuaded to price their products at Steve Job's whim.
While I understand the misgivings that media execs have, boy am I thankful that Apple is fighting for the consumer. Amazingly, this is what Apple has become. The leader of the people, the populist conglomerate. They fought the big mobile networks, they fought big record companies, and they will fight big media. [I'm not completely serious here, don't worry.] Subscriptions via iTunes [when will that name change] are just much simpler and easier to manage than traditional subscription systems. Two pet peeves that I have about the internet are "magically" being subscribed to email lists and having to separately sign into innumerable services. Apple gets rid of both (at least within their ecosystem).
Newspaper and magazine subscriptions have been a long time coming. But I see this more as an intermediary step. In my opinion, subscriptions are ultimately meant for video.
An Apple TV with support for apps and subscriptions would represent a true alternative to cable. Instead of channels, we would have apps. An HBO, Showtime, or ESPN (drool) could create "apps" that users subscribe to. These "apps" will have have on-demand content and access to the live feed. Maybe there will be a specific storefront for this "subscription video" and still call them channels. It really doesn't matter. Either way, the words "go to ESPN" will be understood all the same.
The most important part is that it is so beautifully simple. So simple that it would work. Simple for the users because subscriptions over iOS will enable the dream. This dream, of course, is having on-demand tv and choosing the channels we actually want to pay for. Simple because almost anything has a better UI and less lag than what cable boxes currently offer. Simple because the concepts are familiar: users would cycle through these "apps" like they cycle through channels.
Simple for the content providers because they won't need to cannibalize their revenue base to provide online video. They can charge iOS users the same amount they charge cable companies. In fact, with all the recent battles between networks and cable companies over distribution deals, networks can skip the middle man (per se--Apple will always get its 30%) and go straight to the consumer over iOS. Or at the very least, they can use it as leverage.
With the release of in-app subscriptions Apple has truly flexed its muscle in daring to command a 30% cut for providing the platform for media companies to distribute content. As other platforms finally release products and gain momentum, expect content providers to try to leverage them against Apple. In the near future (~2 years) however, also expect Apple not to budge as they are such a strong force in the market that its absurd to ignore them, regardless of whatever percent of sales Android ends up taking. In the meantime, I fully expect Apple to extend their content partnerships into video and turn Apple TV into their next big product.
We have to be very clever about those things. You have to remember that it's only a few hundred years, if that much, that artists are working with money. Artists never got money. Artists had a patron, either the leader of the state or the duke of Weimar or somewhere, or the church, the pope. Or they had another job. I have another job. I make films. No one tells me what to do. But I make the money in the wine industry. You work another job and get up at five in the morning and write your script.
... But who said art has to cost money? And therefore, who says artists have to make money?
Not saying that I agree with him, but when the Godfather (or the man behind him) speaks, you listen. Of course the issue Mr. Coppola speaks of seems to actually be due to the introduction of capitalism, the maturation of the entertainment industry and the invention of IP protection. All of which I don't envision us moving away from.
Modern Family is a fantastic show. It feels fresher, more relvant to the times, and in a word--more modern than mostly everything else out there. It embraces the uniqueness of the present, incorporating Facebook and iPads into the storyline. Thusly, I couldn't have been more surprised when I saw this interview with Modern Family creator Steve Levitan.
The saddest part about Levitan's statements? When he dismisses his Hulu faithful because he frankly "doesn't get any credit" for the views. He has a top 10 show that could be top 2-3 for crying out loud. Nielsen won't you give it to him?
Where did my viewers go? The issue isn't that Hulu is "siphoning" off viewers. Viewers are viewers are viewers. Live viewers have more value because advertisers know more about them and can target accordingly. But in the same respect, internet viewers can be tracked much more specifically and accurately than traditional television viewers. Maybe the issue isn't the fact that Hulu is stealing away viewers, but that these viewers are considered stolen at all? Data is only as good as the method of collection, and if analytics firms are ignoring digital views when compiling top 10 lists then maybe we need more accurate top 10 lists?
Radio to TV to Internet. What do digital viewers mean to me? At one point it was a zero sum game: TV=home entertainment, and networks focused on battling it out with each other. Households centered around the television so religiously that if you weren't watching TV you weren't in the market to be entertained at home. Yet now I can fill my nights up with reading anything and everything on the internet, watching cats roll around and babies bite fingers. Now television shows have to compete with other forms of home entertainment. Similarly to how TV overtook radio, the internet is overtaking TV in percent share of our leisure (and work) time. It is simply a better distribution medium. Better for users and advertisors alike as there is a 2-way channel for communication. With users preferring to be online than watching "live TV" I would claim that a large percentage of digital/on-demand viewers actually represents an incremental market.
An incremental market means an incremental revenue stream. If Levitan is assesing things like the head of the studio, I would hope that top 10 revenue numbers matter more to him than top 10 weekly ratings. If I were a studio head I would focus on monetizing a viewer base that wants to be monetized (since they're on Hulu and not torrents). The question here is whether Hulu is the best avenue through which to monetize.
I'm positive that network executives are aware of all of this. They're simply in a bind as they have to carry along the baggage from their prior relationship with TV to the new, more lively internet (who actually "communicates back" and doesn't just sit there). And it's up to the web entrepreneurs to ease this transition.
