Minding the Business of
Video Streaming Services

The emerging Internet-based broadcasting system has increasingly challenged traditional platforms for TV and film distribution and production. Grappling with outdated business models mainly based on physical media and facilities, many industry players in broadcast and cable television, as well as in film and music, are embarking on innovative ways to create unique online content using new digital technologies, new distribution systems and largely new revenue mechanisms.

Game changers headed by Netflix, Hulu, Amazon Studios and even Youtube (Google) are breaking new grounds as they create more original, prime content aimed for Internet distribution. Purportedly the most successful video-on-demand streaming service to date, Netflix has steadily produced all-original series (House of Cards, Orange Is the New Black, BoJack Horseman, Unbreakable Kimmy Schmidt, among others), gaining both commercial success and critical acclaim.

Explore the interactive image below for market statistics:

A growing number of independent content producers and even media giants has progressively reduced dependence on conventional cable providers or broadcast networks for distribution. For consumers, the rise of this subscription-based business model for distributed content offers more freedom of choice, a la carte entertainment, and increased control of programming and scheduling of preferred shows. It dissolves the necessity to purchase bundles of channels in which many consumers simply end up paying for content that they often never watch. With the explosive growth of mobile devices and their ubiquitous usage as an alternative to traditional media screens, online streaming services significantly complement the evolving viewing habits of a new generation of captive consumers.

Rather than establishing their own industry-wide online delivery system, many major TV networks and film outfits are now forging connections with tech-based Internet distributors like Netflix, Yahoo, Google, Amazon, Facebook, and Apple for media distribution. Netflix in particular has quickly distinguished itself as the non-cable alternative to cable TV. Even as original productions are expensive, Netflix is able to differentiate its own content which attracts new subscribers and also reduces the company’s cost for licensing existing content from mainstream outfits. While movie theater chains and DVD rental/sales stores in the pre-Internet era were never involved in actual film production, distributors like Netflix, Amazon, Hulu, and Google have shown financial capabilities to make feature-length movies.

Revenue Models for Digital Content Delivery

Online TV and movies loom to be the largest and fastest growing form of online entertainment. In general, three revenue models for delivering content on the Internet are identified as follows:

a. Subscription - Opting for quality and convenience, many consumers have increasingly opted to purchase premium content. This revenue model offers a type of “all you can eat” flexibility for consumption.
b. A La Carte - Essentially a “pick-and-pay” pricing model, customers pay for individual shows in a selection menu. This enables consumers to have a more customized experience based on content preferences and spending capacity.
c. Advertising-supported - This model depends on advertising revenue to provide free content. Alongside is usually a “freemium” option for purchase. Contrary to some claims, free content can actually even lure customers to paid content, as evidenced by the success of the likes of Pandora and Spotify.

Video-on-Demand fee-based business models

Video-on-Demand services allow customers to decide when and where they want to watch movies or TV series. The worldwide revenue of US$53.0 billion in 2019 is expected to grow to US$96.0 billion in 2025. Video-on-Demand (VoD) content distributed over the Internet includes three fee-based business models:

a. Transactional VoD (TVoD) - This consists of rentals as a single transaction or pay-per-view.
b. Subscription VoD (SVoD) - This represents rentals as subscription-based services.
c. Electronic-Sell-Through (EST) - This encompasses purchased downloads or cloud storage.

Netflix and Amazon Prime Video are some popular examples of the subscription-VoD or SVoD model. For a monthly subscription fee, consumers can access movies and TV series which are streamed to a variety of supported devices.

Quick Figures:

• Global revenue in the video streaming (SVoD) market for 2020 is pegged at US$51,617m, with most of the revenue generated in the U.S.
• The average revenue per user (ARPU) in the video streaming (SVoD) market is estimated to be at US$58.52 in 2020.
• A significant increase in video streaming subscriptions was seen in light of the COVID-19 pandemic. In September 2020, Netflix had 201.18 million global subscribers which is projected to reach 275 million in five years.
• User penetration is estimated to be 11.9% in 2020 and is expected to rise to 17.2% by 2025.
• The number of global users/subscribers is expected to amount to 1,337.1m by 2025.
• Subscription projections for the year 2025 see new players rising as well. Apple TV+ is expected to rack up over 27 million global subscribers, while HBO Max could amass over 27 million.

Sources

1. Guitton, J. (2015, October 21). Netflix Case Study. Slideshare.
2. Gvozdev, E. (2013, December 17). Netflix Business Model & Strategy. Slideshare.
3. Laudon, K., & Traver, C. (2018). E-Commerce 2018: Business, Technology, Society (14th ed.). Pearson.
4. Statista. (2020). Video Streaming (SVoD) - worldwide - Statista Market Forecast.