Seems like everyone and their mother is trying to launch a content service over the top these days. But so far, the ever-growing number of available streaming services has brought in real profit to only a few--even Netflix (NASDAQ: NFLX) is struggling to maintain decent margins--while frustrating consumers searching for the content they want to watch.
Could alliances between online video providers--rather than industry consolidation--help resolve these problems?
Last week, in a session at the OTT Video Executive Summit, a lot of the chatter revolved around the fragmentation of the online video industry. Different technology standards, different providers, incredibly complex windowing, user frustration--you name it.
When industry expert Steve Kasakitis, a DirecTV (NASDAQ: DTV) veteran who led user experience at the satellite operator, said during the panel that content providers like CBS should think about joining forces, rather than launching their own separate services, to transform "this big fragmented explosion" that is OTT into more of a Hulu type of experience, attendees nodded. The idea isn't a new one. But is it a good one?
In the online video industry, like other sectors, most collaboration revolves around setting and maintaining technology standards--such as specifications for compression standards like MPEG-4 or HEVC.
The most recent, ambitious alliance happened Friday, when 17 companies that have significant stakes in the online video space announced the formation of the Streaming Video Alliance. (Of note, neither Netflix nor Amazon (NASDAQ: AMZN) joined the group.)
The SVA's goals are pretty broad and aim to address some of the overarching problems in the online video industry. The group wants to develop specifications for open architecture that supports live and on-demand streaming; it wants to find a common approach to measure Quality of Experience; and it wants to create interoperability standards for streaming high-quality online video worldwide.
Those ambitions are pretty moderate compared to the goals of other industries (compare it to, say, the massive nationwide broadband stimulus initiative begun in 2009, and its massive technology and financing challenges). But right now, OTT video, almost 20 years in, is still the Wild West. A number of online video companies, technologies and innovations have fallen by the wayside, but the segment is still dealing with big challenges.
The Streaming Video Alliance is looking at broad industry issues. But shouldn't content providers think about forming their own alliances?
Kasakitis and others think so. "I don't think CBS has enough varied content to make it a one-stop shop for consumers and that is a problem. If consumers have to cobble together a viewing experience from a variety of sites, I don't think most of them will be willing to put in the effort to do it," he explained to me in an email following the summit. "In addition, every time they sit down to watch TV, they will have to put in effort to move from site to site to get the content they want. Therefore, I think content providers will be driven by customers to form consortiums in order to get a lot of content in one place. That's a winning formula to compete with Netflix, Amazon, etc."
An example, he said, is Hulu. Despite not having the subscriber base that Netflix has, its model is a good one to follow in terms of aggregating content from different networks.
"The fact that Hulu consists of the major networks makes sense to me. It will be interesting to see if they eventually add others like HBO in order to gain premium content," he said.
Being owned by many of the companies that aggregate their content on the service probably makes it a bit easier for Hulu to execute on that business model. But the end result is that consumers access recent broadcast content for a reasonable subscription price--or optionally in an ad-supported environment.
Delivering video across the world's variable broadband infrastructures is still a challenge. Making money while doing it is a mystery to some providers and a fast-slipping opportunity for others. Smaller online video providers, along with content creators and distributors, should look into ways to partner on content--a solution that lets them maintain their independence and drive profitability while delivering on customer demands.--Sam