Building a Sustainable Streaming Media Model

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Article ImageConsumers are demanding their entertainment on a variety of platforms, and everywhere you look it seems like everything is streaming. But is that sustainable? There is not only the issue of monetization, but there’s bandwidth too. Can we all stream our favorite shows and music? And can companies make enough money to keep producing the content?

Is Streaming Video Sustainable?

Shay David, chief revenue officer and co-founder of Kaltura, Inc.--an online video management platform for companies such as ABC, Disney, and HBO--says streaming video is "absolutely" a sustainable method of content delivery.

"Not only is it sustainable, but I think it's going to replace many other forms of delivering entertainment; I think the economics are there," says David.
In fact, two trends have converged in recent years to make that happen, according to David. "One is that the cost of delivery was dropping and the other is the audiences are pretty confident in consuming their media as a streaming solution ... I would say 2011 was the first year that the economics of those two met in a way that streaming can actually be sustainable economically. From there on, it becomes a question of creating value added services," he says.

According to a CNNMoney article ("Netflix Tops Apple in Online Video Sales"), the online video business more than doubled in 2011 to $992 million in sales, and IHS iSuppli expects that figure to double again in 2012.

Rich Hull, who advises many of the nation's largest media and entertainment companies on content strategy, finance, and distribution, and who is a former film and TV producer as well as an EContent columnist, also firmly believes in the sustainability of streaming video. "It's not only sustainable [but] it's the first choice for content consumption of anyone under 20. Ignore it at your own peril," he cautions.

David adds that he believes streaming video will become the dominant form of delivery for scripted entertainment "in the coming two years for sure."
According to David, "You look at the US broadcast industry, and depending on how you measure it, it's a $60-80 billion dollar industry." He continues, "I think that over the next decade you are going to start seeing half of that money if not more moved towards delivery over IP-Different forms of subscription ... different forms of delivery on mobile devices. It doesn't necessarily need to be streaming per se. We have seen different models on mobile, for example, of apps that bundle the content and the app in one."

Manny Puentes, CTO at Lijit Networks, Inc.--which says it provides online advertising services, audience analytics, and reader engagement tools to more than 125,000 sites on the "independent web"--also believes streaming video is "totally sustainable." He adds, "The new infrastructures around cloud computing, distribution channels and technology innovations to compress data make it not only sustainable but easier to create and deploy faster and cheaper than ever before. Streaming video is the next television."   

Multiple Platforms Are Key

"Any particular streaming platform represents pennies compared to the dollars of traditional distribution," says Hull. "But money gets made in streaming by making your content available on as many platforms as possible at the same time. It's a different mindset for content owners-consumers want everything anywhere."

So who is doing a particularly good job at making their content available on multiple platforms? "The studios. Content owners will license their content to any platform willing to protect it and pay for it," says Hull.

Puentes pointed to a few media companies that are "phenomenal" at making their content available on as many platforms as possible. "YouTube and Hulu are great examples of this. You can find their streaming video on virtually any smartphone device, for Windows, on Mac, and via cellphone providers. In the online advertising space, video distribution on as many platforms as possible is in the roadmap," he says.

Of course, subscriptions can also be a moneymaker. Jennifer McClain, senior product manager of streaming for Compuware Corp.'s Application Performance Management, says the consumer market is willing to pay for access to streaming content--but they have some expectations. "Fewer users are driven to access content illegally as long as the premium content they pay for--or that is paid for through advertising dollars--is delivered to them without significant re-buffering or other performance issues. Advertisers will become more willing to spend money on online streaming platforms as long as those platforms perform well and retain satisfied users," she observes.

McClain "absolutely" believes streaming video is sustainable. However, its sustainability is "dependent on a satisfactory user experience, primarily driven by performance," she says.

"Offering the ability for users to access premium content from many devices and locations is certainly a consumer market demand, and users are very willing to experience advertising as long as the delivery of streaming content performs well," adds McClain, who has more than 10 years of experience in the IT industry, with specialization in the performance of streaming media.

Maintaining Monetization

While Hull believes streaming video will continue to be profitable, he says that "the monetization landscape looks different than we've traditionally been used to." He adds, "In the past, for instance, DVD represented one of just a handful of the giant revenue buckets that made up almost all of a film's revenue. But now, instead of having just a handful of sources that make all the money, we have a much greater number of small revenue buckets.

"Today we see a much more fragmented marketplace, but when taken in the aggregate, [streaming video will] ultimately overpower the revenues from more traditional distribution. And by the way, traditional distribution isn't going anywhere (theatrical, DVD, television, etc.), but it'll just represent one of the many fragmented sources for monetizing content," he continues.

David also feels that streaming video will fare well in the future. "The more audience they can grow the better they make money; if you have good content you can build an audience--there's no question you can make money," he states. "The economics are there ... for the last two years, it's there--the market is there."
In fact, according to David, "most publishers today have more interest from advertisers wanting to monetize video than they can actually have stream. A lot of people are literally returning checks to advertisers ... making money is absolutely not the problem."

Puentes feels that video offers an "extremely rich channel" for advertisers, and it becomes more appealing as technology advances. "Margins may be smaller as streaming video becomes more efficient but the volume will increase making up for lost margins," he says. "Considering the rapid pace of technology for streaming video, I predict that advertisers will soon start to consider streaming video as a distribution channel with time slots in a video."

McClain observes that streaming video needs to "retain satisfied users who are willing to pay for high-performing content or view advertising that pays the overhead of delivering high-performance content."   

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