Netflix disrupts, but still dependent on content owners' traditional business models

NEW YORK--Netflix may be an online disruptor, but it's still dependent on upstream content producers using traditional models. There's no money in transactional VOD. HBO never said it was going direct to consumers with its pure-play OTT service. And there are more eyeballs on Hulu's content than anywhere else.

These are a few of the statements made by online video executives at the OTT Video Executive Summit held Tuesday here, in a panel session discussing the economics of over-the-top video.

Panel participants tackled questions around the viability of OTT, particularly as it grows and evolves. What elements will fade away, and which will become a permanent part of a more established OTT model? Which OTT players will see long-term success?

No participant questioned Netflix's place in the OTT pantheon. The subscription video on demand (SVOD) provider has been OTT's biggest disruptor. It's even having an effect on windowing--the process of scheduling content around other distributors' scheduling of the same content.

Netflix's recent deal with the Weinstein Co. to bring a Crouching Tiger, Hidden Dragon sequel to the service on the same day it hits theaters is an example of its move to collapse the traditional windowing model, said Amit Ziv, VP of business operations at EPIX. But the SVOD provider relies on the same business models it's trying to upend.

"There's no question they've been most aggressive in the space," Ziv added. "But they still very much depend on legacy business models upstream."

Another OTT assumption that may be punctured in the near future is the profitability of transactional video on demand (TVOD)--selling or renting videos online. OTT Digital Services President Steve Harnsberger said that when it comes to making money, subscription is where it's at.

"There's not that much money in transactional because there's more money in subscription," he said, explaining that a customer can pay a few dollars for a purchase or rental or pay about the same amount of money for a monthly subscription to a streaming service. "People that pay a small amount of money for a lot of content end up having a better experience."

One of the trends around building value for SVOD, Harnsberger added, was that providers were "trying to get unique content as well as unique windows."

Further, he saw Hulu as a continuing disruptor--because of its unique model of streaming recently aired content along with advertising. "The number of eyeballs on Hulu is greater than the number of eyeballs anywhere because you have all that advertising," he said.

Execs pulled the covers off more assumptions around what was perhaps the biggest news story of the fall, HBO's announcement that it would be launching a pure-play OTT offering sometime in 2015.

"HBO did come out and say they were launching an OTT service, but that does not mean they're launching a direct-to-consumer service," said Ziv. Looking at their current revenue from cable subscribers that take their service, he added, "do you think they're going to cannibalize that for OTT?"

Ziv feels that HBO could bundle its OTT service into one of the emerging virtual MVPD services, like that being developed by Comcast, or as part of a broadband subscription package from a carrier like AT&T.

He pointed to CBS' recently announced subscription OTT service, and the fact that the service will roll out with Sony's planned linear OTT offering.

Mark Donnigan, senior director of sales and strategy for Beamr, agreed that HBO, CBS and now Showtime's announcements didn't necessarily mean that the entire industry was about to change. "The notion that suddenly it's going direct and the bundle's breaking up--the evidence isn't there. I think it is acknowledgement that consumers want access outside the home. … (Likely there will be) new distribution options, patterns, but to say this is some sort of wholesale change to the business model, I think is wrong."

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