Online video providers from Netflix (NASDAQ: NFLX) to Amazon (NASDAQ: AMZN) to Yahoo are scurrying to create original content that will poach viewers away from their rivals. But an analyst with The Diffusion Group says that pouring money into scripted entertainment is a strategy that is destined to fail.
"Business strategies do not work forever, as the most effective schemes are copied and augmented by competitors," wrote TDG analyst Joel Espelien in a blog post. "As this happens, they lose their capacity for competitive differentiation."
What does that mean? Viewer fatigue presents one problem. "Do viewers really care about the forty-seventh new science fiction series, or the fifty-seventh original series about vampires?" he wrote.
Another problem is that online video providers aren't growing a viewing audience; they're simply competing for a bigger slice of the "same viewing pie," because total TV viewing in the U.S. has remained flat, he explained.
Falling back on licensed, third-party content isn't a sure thing, either. Even though Netflix built its empire on this model, its future contribution to the SVOD provider's revenue is likely to drop. Espelien explained that "margins on third-party video content are inherently low and approach zero over time. That is, where content is offered to multiple third party aggregators (i.e., Hollywood movies), the price will approach the cost the studios charge to license the movie."
So, what's the solution to this problem of diminishing returns on both licensed and original content? Espelien noted, broadly, that "original strategy" will trump original content.
That means there's no sure-fire way to pull ahead in the OTT race--and providers are going to have to get a lot smarter and more nimble in the way they present and promote all of their content.
For more:
- see this TDG post
Editor's Corner: Want to reach more of the online video audience? Have a 360-degree, multiplatform strategy
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