What's Yours Is Mine: Online Video Competition Gets Messy

Still need proof of tech innovation's disruptive impact on business? Look no further than the entertainment industry.

Choose your analogy: mud-wrestling, phone-booth stuffing, a rugby scrum, a shark feeding frenzy. Everyone wants everyone else's - plus their own. Verizon, one of the two primary US phone companies is partnering with RedBox, the retail video kiosk biz to take on Netflix, which is producing its own movie and tv content in competition with the film and television production businesses that keep it going - while Amazon is considering all of the above.

In attempting to explain the strategic imperatives, another analogy, the old 'throw the spaghetti against the wall and see what sticks,' line may be most apt. Consumers are using a variety of platforms and media. Businesses arent sure which ones they are currently in will prevail so they are trying to get a piece of all of them in hopes that the combination may be sufficiently profitable or, at least, sustainable, to keep them alive until the future becomes clearer (if it ever does) or until someone pays a big enough premium to make acquisition palatable. Whichever comes first.

Whether this 'strategy' makes sense from an investor's standpoint is questionable. But with entertainment's future currently shrouded in impenetrable mist and a sense that values will continue to rise in a global market, strategy may be a synonym for survival. JL

Who said convergence wouldnt be fun? JL

Carl Franzen reports in TPM:

In case you haven’t been watching the online streaming video business closely over the past few years, now might be time to sit up and pay attention.

Three major announcements from four major American companies on Monday paint an intriguing picture of where things are headed over the course of 2012. Put simply: Everyone wants to be in everyone else’s business.
First up: The news a new online video streaming service is coming to the U.S. later this year thanks to a partnership between telecom giant Verizon and Redbox, the DVD and Blu-Ray kiosk (vending machine) rental brand founded in 2002 that’s quickly become America’s most popular physical video rental channel, according to a recent survey from consumer market research outfit NBD.

The two companies are serious about the alliance two, with Coinstar fronting $14 million for it and more on the way, according to the Los Angeles Times. It will be jointly-owned, with 65 percent control by Verizon and 35 percent by Coinstar.

The as-yet-unnamed streaming service is scheduled to debut “in the second half of 2012,” according to a news release from Verizon and Coinstar, Redbox’s parent company.

“It will offer subscription services and more in an easy-to-use, flexible and affordable service that will allow all consumers across the U.S. to enjoy the new and popular entertainment they want, whenever they choose, using the media and devices they prefer,” Verizon promised.

That sounds pretty good for the consumer: Media on demand on any device. Verizon has some experience with this via its FIOS Flex VIew, a remote streaming service that launched in November 2010 and has since expanded to multiple devices, including the iPad.

It’s also basically, the “TV Everywhere” streaming concept currently being pursued by cable companies like HBO and Showtime, which Netflix said it was rightfully fearful of in its fourth quarter earnings statement.

Not surprisingly, the “Netflix killer” description cropped up in quite a bit of the news coverage of the new Verizon/Redbox partnership. And there’s no mistaking Redbox, so far a disc rental company, is eager to get into Netflix’s turf.

There’s a complication to that, though, as Redbox, like Netflix, is struggling with the onerous content licensing terms imposed by the content licensors — the major movie and TV studios, aka old Hollywood. Warner Brothers, for instance, recently imposed a 56-day delay on making content available on Netflix and Redbox (That’s 56 days after the DVD release date). While Netflix capitulated to the new delay, Redbox has gone ahead and given WB the finger, saying it will purchase the discs the way consumers generally do, through third-party retail channels (Best Buy, anybody?) the day they’re released to make them immediately available to customers.

Netflix is getting into the original content business

Netflix isn’t going into the night quietly, of course. After posting stronger-than-expected fourth quarter earnings in January, the company on Monday announced that its first “original content” offering, called “Lilyhammer,” a fish-out-of-water gangster comedy, is available immediately for all Netflix customers across the world, with subtitles and local Latin American voice-overs.

In another twist from Netflix: Every episode of the series is available for immediate, instant streaming. There’s no week-by-week episode airing time, as has been the case for most of TV broadcast history.

As Netflix chief content officer Ted Sarantos wrote in his blog post announcing the new series:

“It is our hope that we can help to bridge language barriers to bring the world’s content to an increasingly global audience. Cable television brought some diversity to the programming grid starting more than 30 years ago. Netflix plans to take that to the next level, using the power and reach of the global Internet. With no physical need for fragmented distribution, the possibilities for a regional TV show or movie to reach a global audience are limitless…

Unlike any major TV premiere before it, we are debuting all eight episodes of the first season at the same time today. Conventional TV strategy would be to stretch out the show to keep you coming back every week. We are trying to give our members what they want; Choice and control. If you want to watch one episode a week, you can. If you want to watch the whole season this week, you can do that too.

However, it’s not exactly the “premiere.” As Sarantos also points out, the show is currently a smash hit in its Native Norway in its third week on the air. It was also announced on Monday that the BBC had purchased the rights to broadcast the series in the UK. Though again, in both cases, Netflix was the exclusive licensor of the show, a nice change for the streaming and disc rental company, which generally has to pay to license content from other studios.

While the first test of Netflix’s content purchasing powers, Lilyhammer will be followed up later in 2012 by an even more hotly-anticipated show, the David Fincher-directed political series “House of Cards,” produced and starring Kevin Spacey. If either show succeeds, it could give studios jitters that Netflix is moving in on their turf, especially since Netflix reportedly outbid HBO a hefty sum for the rights to “House of Cards.”

Amazon is getting into the retail and streaming video business?

Finally, in the last bit of video crossover news, Amazon is reportedly gearing up to open a test retail outlet in Seattle within months, according to “sources close to the situation,” the blog GoodEReader reported on Monday.

The store won’t be competition with poor Barnes & Noble and other brick-and-mortar book retail chains, which Amazon has already all-but defeated thanks to its online book selling business. Rather, it will be more like, well, the Apple store. As GoodEReader reported:

A source has told us that they are not looking to launch a huge store with thousands of square feet. Instead they are going the boutique route and stocking the shelves with only high margin and high-end items. Their intention is to mainly hustle their entire line of Kindle e-Readers and the Kindle Fire. They also will be stocking a ton of accessories such as cases, screen protectors, and USB adapters. Again, Amazon’s low-margin e-reader and tablet business, though huge, is widely thought to be predicated on a play to get Amazon devices into consumers hand to sell them content through Amazon.com at more premium prices.

But as Apple has proven, there’s certainly a market for a niche line of successful, high-end electronic hardware from one brand. Now we’ll see if Amazon can corner the low-cost side of that market.

Still, to bring it back to streaming video — Amazon, in addition to selling DVDs and Blu-Rays, of course runs its own Amazon Instant Video streaming service, in which customers can purchase titles on a pay-per-view (or pay-to-own) basis. Customers who pay for Amazon’s $79-a-year premium shipping service Amazon Prime also receive access to Instant Video as part of that package. Netflix recently speculated in its fourth quarter earnings statement that Amazon would soon launch a stand alone video streaming service to compete directly with Netflix.

If that’s so, and Amazon is launching both a streaming video service and a retail outlet, it would seem to be wanting to go in both directions at the same time — having a hand in everyone’s business.

No matter how you look at it, 2012 promises to be a very interesting year in online video.