Millennials don’t watch much TV, but viewers in that age group have, historically, never watched much TV, according to Michael Goodman, director of digital media at Strategy Analytics. Goodman spoke on a panel on Internet TV at CES a few weeks ago. What makes today’s Millennials different from previous generations is the amount of choice they have for getting entertainment in the home.
“The thing that is changing is a democratization of television that hasn’t existed previously,” Goodman said. Ten years ago, consumers aged 18-34 had only two options for home entertainment: antenna TV, or cable. “Today, I have a lot of options,” he said. There’s pay TV, antenna TV, aggregator streaming services such as Netflix and Hulu, niche streaming services such as Crunchyroll and Machinima, there’s subscription services, ad-supported services, and of course YouTube. “There’s a level of competition for the consumer’s video dollar that hasn’t existed previously,” Goodman said. “And that’s changing behaviors as a result.”
Consumers now have more options than ever before, and a battle is brewing between traditional providers and the new entrants as to who will take the lead in Internet TV. Strategy Analytics estimates between 40 and 50 million viewers in the US now subscribe to at least one of the various OTT services. Goodman said that number will reach 62 million in the next five years. Pay TV providers losing subscribers quarter after quarter, but they are also now launching their own Internet TV services.
“Right now, there’s a battle going on,” Goodman said. “Service providers like Comcast are recognizing that they have to be able to reach multiple screens. How we access it, and how we pay for it – that’s absolutely going to change. In five to ten years, it’s not going to look the same as it does today.”
Goodman pointed out that content owners aren’t being disrupted by Internet TV services, but service providers are, primarily in pricing competition. A pay TV package can cost about 10 times more than a Netflix subscription.
“It’s not the cablecos, telcos and satcos ultimately dictating that price point,” Goodman said. “It starts with the content owners, and as a result of that, you get bundling. It’s a system that was set up in order to maximize the revenue for the content owners.”
OTT services such as Netflix benefit from the pay TV industry, he said, because that’s where the bulk of their must-see content comes from, and consequently, that’s what draws in the bulk of their subscribers. Netflix subscribers still get access to some of the top programs, albeit about a year after those programs air on TV – and for a much lower price than a pay TV subscription.
Netflix and others are able to acquire licensing for that content because the broadcasters and networks view the deals as generating additional revenue. Whether this approach will prove prudent for content owners is a matter of debate.
The catch, Goodman said, is that if and when the pay TV business crumbles content owners will shift their licensing strategies to reflect the move to Internet TV. “Content owners are going to shift their revenue requirements,” Goodman said. “If they can’t make the money on cable and telco and satellite, and there’s these other guys over here, where all the subscribers are going to, guess what? Content acquisition costs are going to go up for them.”
This was predicted in the past for Netflix, perhaps a few years too early and Netflix has responded by entering into the original content business in a big way – but how many other OTT services will be able to source a large percentage of their own content, like Netflix?
We can see some of this shift take place in Netflix’s rising content costs. “They’re going up by $500 million every year,” Goodman said. “Dollars are going to shift. Netflix is not going to be $9-$10 a month five years from now. It’s going to be $20-$30. He who owns the content sets up the business model,” Goodman said. “2015 is going to be an exciting year.”