Netflix streaming service or media company?
When I started this blog series, I held the belief that Netflix should only be compared to other paid streaming services. The more research I have done, it has become evident that Netflix’s competition is any other streaming service. Today we can get streaming news stories on Stuff.co.nz, most TV channel (even in NZ) have their content on demand, watch funny cat videos on YouTube or watch whatever we like!
I have also had to explore and accept that I am part of the last generation that will have TVs and consume most of my digital media this way. The millennials are consuming digital content in unexpected ways, for example, I know I can view media on my phone, but I would much rather watch content on a larger screen (like a desktop or a TV). SmartPhone use has increased the consumption of digital media, and increased the time and locations when we can consume digital content.
Below is the review of the key parts of the digital content market.
Internet Service Providers (ISP) and Net Neutrality
In this market, the ISP are the winners no matter what type of digital content that their customer watch. Their consumers use data to watch streaming content, and that data is chargeable. Given this, it should be a no brainier for ISPs to support and encourage users to binge watch via these streaming services.
With the increased use of Smartphones and other portable devices, it is also the telecommunication companies that have seen an increase data usage that is directly linked to streaming services With local content caching arrangements with Netlfix and a like, the ISP have the abilty reduce their costs further.
One interesting developmental with digital content is the need for ISPs to be Net Neutral.
As defined by Wikipedia:
“Net neutrality is the principle that Internet service providers and governments regulating the Internet should treat all data on the Internet the same, not discriminate or charge differentially by user, content, website, platform, application, type of attached equipment, or mode of communication. The term was coined by Columbia University media law professor Tim Wu in 2003, as an extension of the longstanding concept of a common carrier, which was used to describe the role of telephone systems.”
Net Neutrality is an important concept that if I pay my ISP for internet access, then I should be able to access any content that I choose without my ISP influence. This freedom allows the user to consume digital content from any platform or provider.
One of the issues with Net Neutrality is that an ISP is not likely to admit that they shape traffic from Netflix, as in slow down any traffic coming from that network. The questions of speed can be impacted for many other reasons than just traffic shaping by ISPs. If we look at ADSL, the bandwidth is shared amount the neighbourhood. A consumer is not likely to get great rates of downloading at peak times when all of their neighbours viewing digital content.
Interesting to note that in Netflix has a website devoted to ranking each ISP for speed, please find the June 20616 Netflix Australian ISP report below. What I find interesting is that these Netflix ISP review reports are discussed in the Australian media. Based on some of the commentary on the June 2016 report, it would seem this rating system has forced the ISPs to increase the speeds for using the Netflix service.
For comparison below, please find the latest Netflix Speed test for New Zealand.
The concept of Net Neutrality does not stop business from exploring or supporting their own streaming services. Currently, Spark offers their Lightbox service for free if you use the broadband service. I think this is a great business opportunity, and as long the speed is going to be the same, Spark will continue to be net neutral.
Streaming Service Providers (SSP) & Over the top content (OTT)
These seem to be easily identifiable into two groups, paid services like Netflix or unpaid like YouTube.com. When a consumer uses a free service, they will need to watch advertisements before they can view the desired content. The delay in displaying the content is not a barrier to consumers using the service or discouraging people to load content that is monetised (making you watch advertisements). Interesting to note that YouTube has started to diversify into paid services. These paid services can be for viewing of a movie, a monthly cost to access a particular channel or to watch the SSP without advertisements.
Youtube has a history of being the place where anyone can upload a home made video clip and become an internet sensation. Since YouTube are not creating the content, they have come up with ownership rights limiting terms of service. Below please find clause 6 of the Youtube terms of service. https://www.youtube.com/t/terms
When you agree to YouTube’s terms of service and upload that cat video, you still retain the ownership, but Youtube has removed most of your rights unless you remove it from the platform.
Copyright or Licence owners
When the digital content was first available online for consumption, consumers felt that they now had the power. The power to watch what they wanted and when they wanted it. No longer would they be at the mercy of the film industry or the television channels. Ironically now the film industry, tv channels, media companies or the creators of content still have the control over what is available online and at what time. Please note that I am talking about the legal consumption, I will be covering off the not so legal ways of viewing digital content in my next blog.
There is no mistaking that Netflix is focused on generating their content; it has been reported that in their 2016 budget for original content was $6 Billion. Yes, Billion with a B! As you think about it, the business model has the potential to make Netflix a good return on investment. Firstly paying subscribers will access the original content, and this will generate interest and publicity for when they licence the content to be air on TV (paid for channels or then on to the free to air channels).
As the copyright holder, there is the ability to manage the content for maximum impact. “Last Week Tonight with John Oliver” is an HBO original series. As a news and current affairs program, the content is timely. HBO have ensured that the program grows in popularity and drives subscribers to the HBO brand, by releasing the episodes on YouTube. It appears to be the 3 -day delay in making it freely available is enough of an incentive for people to be an HBO subscriber and join in the water cooler conversations about the program on a Monday morning.
Thank you for taking the time to read my blog, do let me know if Netflix raises any questions for you or if you have any feedback
References
https://ispspeedindex.netflix.com/country/new-zealand/
https://www.youtube.com/t/terms
http://www.bloomberg.com/topics/markets
https://ir.netflix.com/faq.cfm
