What is the marketplace landscape?

I don't know that we have a clearly defined distribution marketplace yet for Online movies and TV. Various online services use their own servers, or commercially available services. There is, and probably will remain, little differentiation between content types (shorts, long form, movies, TV programs), other than just the way these services label themselves in their market niche. Some of these distribution mechanisms are distributing only to portable devices, while some distribute to all Internet connected devices.

I suspect the distribution hosting/service providers will continue to fall into several camps for the near future:

• Content and DVR services to mobile users.
• Independents hosting their own or other's content, and using smaller servers, and possibly distributing to all types of connected devices. These include companies like CloudWeb, RackSpace, and GlowHost. Amazon AWS with Wowza is another service within reach of both small and large companies.
• Those who distribute through Roku®, YouTube®, Vimeo®, Boxee® with DVR, and other services.
• Those who distribute through XBox®, WII®, PlayStation®, Apple products, and other game platforms.
• Hulu with new content and DVR type service, and Netflix, Redbox®, FIos®, and Amazon Prime® type distributors.
• Large operators who go to services like Ooyala, BrightCove, Limelight, and Akamai (Rackspace), which provide hosting, custom services, on CDN networks.
• Cable and other content services, who use their own proprietary networks for distribution to their customers (Verizon with FIos, Charter On Demand®, etc.)
• Content aggregators who find and provide content to major online services, such as to Apple®, Blockbuster®, CinemaNow™, Hulu®, Vudu™, XBox, Netflix®, etc.

Competitive Differentiators

Is there a competitive advantage between major suppliers of content and smaller Independents?

Major content distributors such as the major television networks, cable channels like HBO, content creators like Universal and Disney, and cable and satellite operators, have giant systems that are very expensive to run, content costs in the double-digit millions to create, and distribution costs are high. They are locked in to their business model by contracts that define the advertising and distribution relationships they have. They have hardware that doesn't support IP distribution very well, if at all. But they have enormous market reach, huge advertising revenue, and an audience and advertisers who aren't going to change very quickly away from that model. Changing to IP distribution will be difficult and very costly, and take many years.

Competition for viewers in different venues is getting serious. Goldman Sachs estimates that 17% of the 18-to-49-year-old demographic simply stopped watching broadcast TV in winter 2012-2013, according to the New York Times. That's huge. Another example, ABC television is trying to give Aereo a run for its money, by broadcasting live over IP to New York and Philadelphia customers for six weeks. At least, that's the spin the press puts on it, and the press is a whore for headlines. But at the end of that six week period, they will only be able to offer the IP service to those who subscribe to cable services. Undoubtedly offering this service full time would destroy cable and hurt their contracts with cable. Other providers, like HBO, have followed a similar course. How ABC plans to use live streaming and the cloud to challenge Aereo. You can't turn this ship on a dime.

In contrast, Independent producers who aren't enamored of the movie and television studio systems, currently have huge opportunities in IP distribution. They can create new forms of content, create what they want, and find an audience for it on the Internet. Content creation costs are relatively small, and distribution costs are relatively small. The costs of digital production and distribution are relatively small. There are few legacy contracts to lock them into expensive agreements. But what they generally don't have is the creative research and talent to create a competitive product, nor the money to do even small productions.

The primary differentiators between broadcasters, theaters, and IP distribution are:

• Targeted advertising: While networks broadcast to every listener, at huge cost to advertisers, except for regional switching over cable, IP allows ads to be targeted by relevance to a known viewer, at a much smaller cost. This is very cost-effective advertising, and can much more easily be measured for running campaigns.
• Convenient viewing: The viewers can view any content at the time and place of their choice, even on their smart phones. Broadcasters and cable channels can have a similar advantage of providing new monetized (pay or ad) content to Hulu and other DVR services, for convenient viewing, but so far have been reluctant to change to new venues.
• Broadcast provides a viewing experience at a habitual or socialized time, giving people something to look forward to regularly (weekly), and enabling 40% of those who like to use the second screen (with social media) to communicate during broadcasts. IP does not have regular or synchronized viewing. IP is an independent experience, not socialized. Structure and socialization are often an important parts of the structure of people's life.
• Theaters similarly operate a socialized experience, giving people an evening out every couple of weeks, which is important to the structure of some people's lives. It is an experience to look forward to, and Hollywood rarely disappoints with the viewing experience.
• The picture quality from broadcast to IP delivery varies considerably, with cable doing a relatively poor job, the Dish satellite network doing the best job, and IP delivery anywhere in that spectrum. The IP standard is 16:9, 30fps, 1080p x 720 resolution. 1280 is also common. But to conserve bandwidth for IP, picture clarity and color are often downgraded. Most of the time, 720p or above has minimal impact on viewing pleasure.
• While Independents can use IP distribution without difficulty now, major broadcasters and cable providers would not be able to convert en mass to IP delivery due to bandwidth limitations, equipment limitations, contracts, and business models at this time.
• When major broadcasters and cable providers do get into the IP market in a big way, they will likely squash most Independents with their mass, money, and vast resources. Independents will have to compete for space, advertising dollars, and high priced advertising space to advertise their programs. We already see that in advertising in Google for movies.

Independents have very low overhead and can create productions sometimes at a fraction of the cost. But what independents are going to find is several costly things:

The public has no interest in mediocre content. To interest a paying public, the content has to be new and of high story and production quality.

You will not get an audience, without some form of advertising. Advertising is the primary way people find you. Advertising movies on Google Adwords, standard, now starts at $3.00 to 7.00 per click. Impression advertising is different.) At a conversion rate of no higher than 1 to 5, it will cost more to advertise in this way than you can possibly make. Note that to monetize your content on YouTube, you can find advertising partners who will advertise for as little as .04. You can advertise YouTube online video on Google Adwords through the Adwords online video campaign section at much better rates. It will cost an average of at least 4 cents per ad view, and at a click rate of 1%, it will cost you around 40 cents per click. You can't include inline advertising to offset costs. There is no way to recoup that 40 cent expense.

Subscription models are not viable, sustainable, business models. Even Hulu struggles. There are already way too many distributors, like Netflix and Rebox and Amazon Prime, and FIos... providing old or mediocre content. But there is a huge market for new, quality content, at Pay Per View prices.

Creating new, quality story and production, content is the holy grail. TV broadcast already does a great job of entertaining with dramas - that is their ball field. They go through a huge number of pilots to find an audience winner. It is a difficult and very expensive struggle to come up with content that is new and unique. Broadcasters and studios have a long history of doing this well - they have the advantage. Independents will find this necessary and financially challenging (or they won't get viewers).

- Dorian

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