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From Netflix to Hulu, Streaming Video Businesses Gaining Ground

August 3, 2011 at 12:00 AM EDT
What have you been watching on your computer lately? More and more Americans are checking out movies and television program online. Hari Sreenivasan discusses the recent push toward more streaming content with GershonMedia's Bernard Gershon.
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JEFFREY BROWN: Now: What are you watching on your computer tonight?

Hari Sreenivasan explores the changing world of video and viewership online.

HARI SREENIVASAN: It was a protest that seemingly erupted out of nowhere. In July, thousands of avid movie fans displayed their anger online when Netflix announced a major change in its rental plans, effectively hiking its monthly rate by 60 percent to $16 a month if customers want to watch movies online and still receive old-fashioned DVDs in the mail.

Some customers even announced on Facebook they would cancel their Netflix accounts. The response was so overwhelming that it was even mocked on the satire website Funny or Die.

JASON ALEXANDER, actor: 2011, tsunamis, wars, earthquakes, but one tragedy eclipses them all. Netflix has raised their prices.

HARI SREENIVASAN: Behind all the anger is a big shift in the company’s business model and how they want customers to change their behavior.

With more than 25 million subscribers, the streaming video service from Netflix now accounts for a quarter of all the Internet traffic in North America. Half those customers use video game consoles connected to the Internet to access Netflix movies.

CLINT EASTWOOD, actor: I know what you’re thinking.

HARI SREENIVASAN: The company plans to expand into 43 countries, and it’s inking deals with content providers like CBS and NBC Universal for rights to stream even more films and TV shows online.

The Netflix announcement came amid a series of other business developments in the battle to claim a share of the growing market for streaming video. Hulu, whose customers overwhelmingly use the site to watch recent free TV shows on their computers, is trying to convince more users to subscribe to its $8-a-month service by restricting the availability of shows that aired within the past week.

The company, a partnership between NBC, FOX and ABC, whose shows are featured on the site, is also trying to entice customers to subscribe by creating original content. Today, it announced its first original web-only show: a six-week half-hour show created by documentary maker Morgan Spurlock, who produced “Super Size Me.”

MORGAN SPURLOCK, “Super Size Me”: Supersize me.

HARI SREENIVASAN: Amazon.com, the online retailer, is now in the game, too, with a streaming video service. It’s offering video for purchase on demand or even for free to select shoppers who pay $80 a year for free shipping of their Amazon products.

Apple, the computer and consumer products company, just announced a plan allowing customers to buy a movie and share it on any device, be it their iPad, iPhone, or set-top box. The largest retailer in the country, Wal-Mart, is rolling out its Vudu service to 35 million monthly visitors at Wal-Mart.com. They will offer nightly rentals of up to 20,000 movies.

And YouTube, the largest online video sharing site, accounting for half of all streaming traffic, has already announced plans for a video rental service, with more details coming at the end of the year.

For more, we turn to Bernard Gershon. He’s the president of GershonMedia, a firm that provides advisory services to digital media companies, including ones that provide streaming video. He’s also a former senior digital media executive at the Walt Disney Company.

Thanks for being with us.

BERNARD GERSHON, GershonMedia: Thank you, Hari.

HARI SREENIVASAN: All right. So, first of all, what do all these different deals, all these different positions that these companies are taking mean? What do they add up to?

BERNARD GERSHON: Well, they add up to big viewership and big money.

There are over 160 million Americans accessing online video today. And that number in the next few years will go to well over 200 million. And people are accessing the content on their P.C.s, on their laptops, on their tablets.

I was sitting here waiting to go on with you, and I was watching PBS NewsHour streaming live on my iPhone. So, I mean, there are multiple ways that people and programmers can now access viewers and those eyeballs.

HARI SREENIVASAN: So, is this shift to digital inevitable?

BERNARD GERSHON: Well, it’s obviously been going on for years. And I can’t imagine — Hari, when was the last time you went to a Blockbuster to rent a VHS? Probably — probably not very recently. Blockbuster is — is dead. Tower Records is dead.

And, certainly, content is moving more and more online, moving more and more to bits from physical goods. And consumers like the convenience. They like being able to stream TV shows and movies from — as you mentioned in the piece opening this, from Hulu or Netflix or Amazon or some other service.

HARI SREENIVASAN: So, will they all coexist? Will digital technology rest side by side with over-the-air broadcasts and cable and everything else?

BERNARD GERSHON: Well, I mean, over the course of time, there are obviously going to be winners and losers.

Broadcast TV is still a big, multibillion-dollar, advertising-supported business, but the growth is small. The growth of online video — and the revenues from online video come from advertising, as well as subscription revenue — those are growing dramatically over the course of time, and they’re growing both domestically and internationally.

And Netflix, for example, recently announced that they’re expanding their service into 43 countries around the world. So, the advantage, you know, taking this product out, using bits, as opposed to shipping VHS or DVDs or whatever, is that you can be everywhere, and you can also extract revenue from consumers much more easily.

HARI SREENIVASAN: Was it necessary for them to raise their rates?

BERNARD GERSHON: For Netflix to raise their rates 60 percent?

HARI SREENIVASAN: Yes.

BERNARD GERSHON: Again, you talk about they have 26 million subscribers to the service. Barely three million of those subscribers are getting the DVD-only package. So, I don’t know that it was necessary.

I think it’s a move to raise more revenue and also drive people to the streaming-only plan, which, at about $8 a month, is a pretty good deal to watch TV programs and movies on demand.

HARI SREENIVASAN: So what about stumbling blocks here? Let’s say the content service providers, like your ISP, the person who brings you the Internet, aren’t they going to complain? Aren’t they going to raise the rates, saying, listen, it costs me a lot of money for this bandwidth, and here you are, Netflix, taking all up — taking all this space up?

BERNARD GERSHON: Well, as in every business, there are going to be gatekeepers.

And, recently, AT&T and Comcast both said that they are going to meter the amount of video content or the amount of bits you can watch. So they may say to you, Hari, you have watched five movies in the last month. Your rates are going to go up, or you can’t watch any more movies.

So, I think certainly there are going to be those gatekeepers, those ISPs, and they will be looking for a bigger slice of revenue from people like Netflix and others. But I also think, with these challenges, there are opportunities for programmers and content creators and additional ways to develop revenue from the original content they’re creating.

HARI SREENIVASAN: So how about those content producers? What do the CBS’s and the NBC’s and the Disney’s do in this landscape?

BERNARD GERSHON: Well, they go the people like Netflix and they say, write me a big check, because Netflix is spending well over $2 billion a year today — and that number will go up — in buying TV programming from people like CBS. They recently announced a new deal with Netflix.

And so there is opportunity there as traditional broadcast revenues stagnate. Again, as I mentioned earlier, the broadcast revenues are still big, but they’re not growing as rapidly as the revenue is from online. So there are people now like Apple, Netflix, you mentioned Vudu, service through Wal-Mart, Amazon, and others who want to make it possible for you and me to watch this content that is on TV, to watch that online or on any device.

So, I think that it is — the opportunity is for consumers to say, I want to watch this content when I want to watch it, where I want to watch it. And whether it’s on a three-inch screen on my iPhone or a 60-inch flat-panel display, I can watch that content, as long as — and this is what the programmers are saying — as long as I am paying someone for access to that content, either by looking at advertising or paying a cable provider or writing somebody a check.

HARI SREENIVASAN: What about those folks who aren’t paying anyone? How big of a problem is piracy in this space vs. music or print?

BERNARD GERSHON: Well, certainly, piracy is a problem.

And I think that there are parts of the world, Latin America and China, for example, where piracy is a bigger problem. But I think, as long as the content is made available in a sensible, convenient, relatively well-priced way, piracy is not going to be a tremendous issue.

Obviously, it exists. And, again, whether it’s a big movie that just comes out, you’re going to be able to find a way to steal that online, but, generally, it’s going to be more convenient to get it through Netflix or Amazon or Apple or somebody else.

HARI SREENIVASAN: All right.

Bernard Gershon, thanks so much for your time.

BERNARD GERSHON: Thank you, Hari.