For those of us who live in the online video world, it's easy to make bold claims that streaming is going to replace traditional broadcast television. In fact, if you were at an industry cocktail party, you might hear insiders say, "With just the right mix of technologies, the traditional television experience doesn't stand a chance."
But is this transition just a question of the right technologies? Yes, it's true that any media and entertainment company can set up a streaming service but as HBO's snafu with Game of Thrones demonstrated, even the most sophisticated companies still have difficulties delivering a flawless, "broadcast quality" experience.
That's because pulling the technologies together in the right way, to support massive scale and global viewership across a multitude of devices, isn't written down in some handbook. Doing it correctly requires a lot of trial and error... and the right decoder ring. And even when an organization gets it right, there's still always the opportunity for something to go wrong. Server failure. Network interruption. Solar flares. Alien invasion. You name it.
As simple as it seems to just log into a website and click on the play button, there are countless moving parts behind the scenes creating incalculable opportunities for failure. And if that wasn't enough, there's also the resource problem -- the Internet only has so much capacity. The video you are trying to watch is competing with your neighbor's Destiny game download, Microsoft's "Tuesday Patch" and a host of other Internet events, all of which conspire to increase the amount of buffering. Imagine if everyone stopped watching broadcast television today and started watching everything online. That kind of traffic would break the Internet.
Okay, so maybe the summary of this piece was a little misleading. Technology does play a huge role in this transition from broadcast to online, and there are a lot of hurdles still to overcome. But they are being actively tackled. Countless organizations and really smart people are working on improved video compression, real-time audience measurement and greater interoperability. Where companies aren't moving quickly, though, is on the business side of the equation. When it comes to transitioning revenue generation from licensing and advertising to subscriptions, most content owners are dragging their feet.
Let's face it, the majority of people still watch the bulk of their video through broadcast television. In fact, according to the latest data from The Nielsen Co. , people watch significantly more traditional TV than online video (even amongst the younger demographics; yes, they are watching more online video but TV still dominates). That means that advertisers are going to spend the majority of their budget on television, not on online streaming, because that's where the eyeballs still are.
Of course, you could argue that creating parity between broadcast advertising and online advertising is just a technology problem. In fact, it's happening today as a host of companies bring dynamic ad stitching solutions to the market. No, the problem isn't about shifting advertising dollars from broadcast to streaming; it goes much deeper than that.
Content owners have long distributed their content through cable companies and broadcasters and generated revenue through licensing and advertising. But with eyeballs slipping from television, content owners must re-evaluate the way that they make money.
Take Home Box Office Inc. (HBO) . Although HBO still has strong relationships with distributors like Comcast Corp. (Nasdaq: CMCSA, CMCSK), Cox Communications Inc. and other cable operators, they are also going direct to consumers with HBO NOW. And they are far from the only content owner eyeing the subscription model.
But HBO NOW represents a miniscule fraction of HBO's overall content revenue. What if HBO decided to cut all ties with distributors and only make its content available through direct-to-consumer subscriptions? That's the kind of action that content owners are dragging their feet on, and rightly so. Indeed, the real revenue is still in traditional television—content licensing and advertising.
And what about advertising? As Netflix Inc. (Nasdaq: NFLX) has shown, ads and online content, in the mind of the consumer, are incongruous. Despite the technology for dynamic, personalized ads in online streaming, consumers don't want to see them (despite subscribing to television service and having to watch ads). Content aggregators, like Hulu LLC , are even experimenting with ad-free subscriptions.
In order for online video to replace television, the business model for how content is distributed must change, and I don't see that happening any time soon. There's simply too much revenue wrapped up in the incumbent business models of licensing and advertising to make wholesale changes.
If there truly is a transition happening between online video and broadcast television, we are in a deep valley right now, with a long climb up to get to the other side. Right now, I don't see a future in which online outright replaces traditional broadcasting, not until the content owners, cable operators and other value-chain participants figure out how to evolve the business models that are so tied up with television as we know it.
Sure, content owners could simply "flip a switch" and move from distributing through licensing to delivering direct-to-subscribers (the technologies are all available), but the impact to the business would be catastrophic. There just aren't enough people willing to subscribe directly to justify it. If anything, this is a generational shift that may be decades in the making, one that will require painful business changes before we really see online video as the evolution of traditional broadcast.
— Jason Thibeault, Executive Director, Streaming Video Alliance