In a very short time, online streaming of entertainment stored in the “cloud” has completely changed the way audiences consume content. Do you remember your life before Netflix? No? Me either. It’s a horrible nightmare of DVD cases and CD wallets. Currently 30 percent of all web traffic in the US is Netflix streaming. This big bandwidth means big business.
According to a report done by Accenture, although this shift has created larger and more global audiences for content producers, creators have had to rapidly shift their business models to meet consumer demand. This means that content producers have had to design content on all platforms delivered in multiple windows.
The thorn in the side of content producers in this shift is piracy. Now more than ever it is incredibly simple to pirate and distribute materials through streams or downloads on the web.
Many legacy broadcast companies have resisted “over the top” or broad-based online content strategies for fear of piracy or a loss of revenue. A live broadcast TV viewing audience is still the most profitable market, but, with this shifting, content providers need to consider alternate approaches.
Last year, Netflix chief content officer Ted Sarandos talked about “outrunning the pirates” to create a better, faster online content product. “The consumer behavior of paying for content is there,” Sarandos said. “People are paying the pirates! We knew that we had to create a product that was better than free.”
At a PwC panel held this month, David Poltrack, executive vice president for research and planning at CBS, noted that 60 percent of the US has broadband access and a digtial tv subscription (such as Netflix or Hulu Plus). Seventy-five precent of these “fully connected” individuals are online and watching televised content at the same time. “The TV viewing environment is an interactive environment,” said Poltrak. “We can communicate directly with consumers while they watch TV…we have tremendous new opportunities in that regard.”
Poltrak also explained that his research shows that 90 percent of consumers, believe that copyright holders should be paid for what they produce. “The only reason they have for going to pirated sites is because they can’t get it on a legitimate site,” he said. “So if we provide it, there’s no reason to go to a pirated site.”
According to Poltrak, CBS has shifted to a model where it airs a full fourteen minutes of commercials per hour of online content, the same as it would for televised content. CBS has found this more valuable than older TV-based models such as on-demand programming, DVR playback or the original commercial-lite streams. “We want to provide the consumer with what they want, which is subsidized access to as much content as possible though advertising,” he said. “And the economics say that can be more lucrative than traditional platforms.”
News Corps’ chief digital officer Jon Miller also weighed in on the panel, sharing that Hulu’s 1.5 million subscribers was “far above our projections.”
Miller thinks that fans of an epic series like Star Wars or Seinfeld may still want to own a DVD set, but that generally “users are moving away from the physical ownership model.”
He agrees that future revenue for the content industry will be based on newly attained consumer knowledge. With streaming access, traditional broadcasters and content providers can know almost precisely who is watching their content and can interact with them on a personalized level, abandoning the old model of guessing at demographics and throwing product ads at them scatter-shot.
"The biggest thing for the media industry is how do we directly relate to consumers, how do we know something about them, how do we interact with them?" asked Miller. "All of those things come from having scale with direct consumer contact…it’s a different way of thinking of your business model."
Miller and Poltrack discussed a future where ads will be customized for each user, offering them direct incentives like coupons and special offers based on their interest in certain products. As consumers move away from physical and broadcast content into a new, unlimited digital realm, content providers, distributors, and advertisers have to be ready to meet consumers where they are.