Video Marketing

Who Wins the Internet TV Race?

William Gadea 05.06.2013

There has been a lot of interesting speculation on blogs such a Fred Wilson’s on who will win the race to provide TV over the internet. (Read the comments to get the full flavor.)

Some people think it will be Hulu, Netflix or Amazon. All three companies are using the Video as a Channel model. They charge a subscription fee for access to licensed content that is usually not exclusive, combined with some original content that is exclusive. Others think that HBO will pivot out of its business model to provide HBO Go for a fee to non-subscribers. (Even though that would cut out their most important business partners, the cable providers.)

But what if the Channel model doesn’t win? What if the winning model is the Platform, like Apple’s App Store? Instead of one company choosing content, producers would take content to the Platform and the Platform would keep a sliver of the advertising or subscription fees earned. That way, the Platform could provide a variety of content that would be difficult or impossible for the Channel model to match.

Some observations:

In the internet age, platforms have done well. (The app store, Amazon’s selling platform, Facebook, Kickstarter, etc.)

The Channel model requires winners to subsidize losers; the hit shows help pay for the shows that fizzle out. If the winners know who they likely will be, eventually they might wise up.

The Platform mode would service niche audiences that likely would be ignored by Channels.

When cable came into the picture, the TV-viewing market was able to decide what they preferred: ad-supported material, subscription with no ads, or pay-per-view. The answer was mainly the first, with some of the second, and very little of the third. There really isn’t much reason for this preference to change because of the delivery method.

Because of the capability of the internet to target ads precisely, internet video ads are likely to have a higher value to advertisers than broadcast or cable ads.

A platform could be a development mechanism too… producers might pick out low-cost pilots that broke out in viewership, and back them with the resources for longer runs and higher production values.

That’s why I find it interesting when the New York Times reports today that YouTube is considering introducing a subscription model. This doesn’t really seem like it will be a final state; rather than paying a subscription for each show, viewers will likely prefer paying a subscription fee for all ad-free content, and then just have the subscription divvied up according to viewership of the content. Nevertheless, it’s another step towards a self-sustaining Platform ecosystem. If the Platform model wins, YouTube enjoys certain advantages that would be hard to beat:

They have an almost infinite capacity to upload, store, and playback video.

Through their parent company, Google, they have experience in selling targeted ads through auction platforms

They are present in the major set-top boxes

They already have strong brand recognition

If the winner is the Channel model, then the market is likely to be an oligopoly, simply because many people will want to view the exclusive content of more than one source. But if the winner is the platform, then because of the eBay effect — sellers want to be where buyers are, and buyers want to be where sellers are — there is likely to be a single winner. And that winner will probably be our current go-to source for cute cat videos and make-up tips: YouTube.

William Gadea

William Gadea

William Gadea is the Creative Director and Founder of IdeaRocket.
William Gadea

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