3 Predictions for the Future of Live Video

2016 was a big year for live video, and I expect 2017 will be as well. To understand what the future of live video may hold, let’s first take a look at the past.

In 2008 Netflix struck a deal with Starz to bring 2,500 movies to their newly-formed streaming service. The deal cost Netflix just $25 million. On-demand streaming was in it’s infancy, and as time would prove, content owners dramatically undervalued the audience Netflix could drive with its service. The Starz catalogue helped catapult Netflix from almost no streaming subscribers in 2008 to over 30 million subscribers by the end of 2012. In that year, just four years after the original deal, Starz declined a $300 million renegotiation offer from Netflix. The dramatic step up ($275 million in four years) highlighted just how much value Netflix took from the deal.

Fast forward to 2016, and the original Netflix deal with Starz is widely seen as the godfather of on-demand streaming. Since then, there has been an escalating arms race among these services. Collectively, Netflix, Amazon Prime Video, HBO, and Hulu have grown their combined content budgets to more than $10 billion per year. The race has driven each to pay billions for exclusive deals, original shows, and celebrity-driven programming as they jockey for position in the streaming gold rush. For viewers, the result has been a dramatic surge in great content to watch.

However, there is one area that on-demand streaming services have largely ignored in content acquisition: live video. You don’t generally see Netflix acquiring the rights to live sports, news, events, or other very timely content. There are two reasons live video has been overlooked by on-demand services historically:

• Product incompatibility: The timely nature of Live is at odds with the “watch anytime” promise of on-demand streaming. The latest Transparent episode from Prime Video can be watched and enjoyed months later by subscribers, whereas a Thursday night NFL game is significantly less compelling months after airing.
• Content strategy incompatibility: Netflix, Amazon, and Hulu have built a content acquisition model where they commit to large up-front payments to content owners. They then earn back these payments through subscription fees paid over an extended period of time. Netflix may have agreed to pay Disney close to $1 billion for it’s content, but Netflix subscribers can enjoy the movies for years. With live video, viewership is focused on a single day. This type of viewership lends itself best to an advertising model, not subscription. As a result, on-demand services have a harder time earning back the high costs of live content.

Enter the social networks: in 2016 Facebook, Twitter, Snapchat, and Instagram all turned their attention to this live video, filling the void left by on-demand streaming services. Always focused on timeliness, and with expertise in advertising, social networks are a more natural fit for live video than Netflix. Each of these companies has made “Live” a strategic priority.

We are in the early phases of seeing a new ecosystem emerge around live video, delivered through new distribution channels on the internet. 2016 in live video felt a bit like 2008 in on-demand streaming, where each player was aggressively searching for their own watershed Starz deal. We saw a lot of experimentation from all major players to see what sticks: deals for full professional games, full college games, live TV news, award shows, as well as content and clips around live video. Facebook started acquiring content to support their live video efforts, and recently brought live video to Instagram. Today, the content being acquired may feel “fringe,” but so did streaming movies over the internet in 2008.

Snapchat and Instagram, with their Stories products, are also pioneering “almost live” video. While not technically live, the format is only available for 24 hours and delivers the same relevancy and timeliness of live video. When Instagram launched Stories earlier this year, I would not be surprised if the company paid celebrities to create “almost live” video on the platform, hoping to find their own DJ Khaled.

With the backdrop of the last 8 years in on-demand streaming, we can make a few predictions about how the next few years of live video will unfold:

1. New entrants will emerge as the market matures.

Today, Facebook, Twitter, Snapchat, and Instagram are making their first moves in live video. Apple has had its sights on the TV market as well, though to date they have focused less on acquiring specific live video and events, and more on partnering with networks to disrupt the cable bundle.

However, just as we’ve seen a wide range of technology companies follow Netflix over the past 8 years, I expect to see other properties with large web and mobile audiences to start picking off live video rights. Early candidates include Verizon, Apple and Amazon.

As the market matures and companies figure out which content and creative approaches perform best in live video (length, camera positioning, format, etc.), the formats will become more consistent as well. As this happens, experimentation will fade, ROI will improve, and a new set of bidders who are further on the adoption curve will emerge. This will all contribute to rising prices for live video content.

2. Content will move to exclusive rights at higher prices.

When large companies with access to capital are jockeying for position in a content market, the natural outcome is a move to exclusives. Content that is available in multiple places is a commodity, and the fastest path to differentiation is exclusivity.

The move from non-exclusives to exclusives as the market matures makes sense. In the early days of the arms race every deal is in-effect exclusive: if you can get there before your competition, you can have an exclusive. Additionally, neither side knows what the ROI will be so both sides hedge: the distributor gets a lower price by not demanding exclusivity, and the content owner gets to also distribute through other proven channels.

However, as the market matures the opportunity to grab new land fades. The path to differentiation is not through pure execution of new deals, but by strategically locking up exclusive content. Additionally, as ROI becomes more clear, both sides know in greater detail what they are getting, allowing both sides to commit to larger deals.

At minimum, category exclusivity will be negotiated. This would look something like “exclusivity in mobile live video,” where the content cannot appear on another mobile TV property. This is similar to how Netflix sometimes negotiates exclusivity in on-demand subscription, but the content can be shown in linear TV. We might even see companies like Snapchat and Instagram pay celebrities to gain exclusive rights to their Live broadcasts.

3. The platforms that drive content discovery will win.

When experimenting with a new distribution channel, content owners are looking at how effectively the channel can attract an incremental audience. Content owners already have outlets for their content where they can attract a very large audience — they look to new channels to grow the audience. This is what made Netflix so powerful. They could take a show like Breaking Bad that had a modest audience at the time and make it into one of the most popular TV shows ever.

To be successful in live video, platforms like Twitter, Facebook, Snapchat and Instagram must give content owners access to a new audience. They have to bring in a new viewer who otherwise wouldn’t have watched the broadcast. For example, for a Thursday night Patriots game, Twitter must go beyond attracting the diehard Patriots fan (this fan would have watched it where ever it was broadcast); they must convince a casual Football fan who otherwise would have not watched to tune in (the value they create).

In other words, they must be great at driving discovery of new content. This is, of course, the advantage of internet distribution as opposed to linear TV — it can be infinitely customizable. These emerging content platforms can, in theory, take an Olympic game of volleyball that would have otherwise gone largely on watched, and find 1 million people that it knows will love watching the game. Facebook seems well position here.

Snapchat could drive discovery in a different, and perhaps more innovative way. The company is rapidly creating a new market for “almost live” short video clips that, viewed in quick succession, give you the feel of Live TV in just 10% of the time. This new way of consuming Live TV could be key to unlocking new audiences.

Final note: Every so often, a new content distribution pipe emerges. As it scales, there is tremendous demand to fill that pipe with content. As demand for the content scales faster than supply, content prices rise. During the past 5 years that pipe was on-demand streaming and the content was scripted dramas. Over the next 5 as video touch points continue to proliferate on mobile, that demand may be for live video. The last 5 years have been a great time to own the rights to premium movies and television, and the next 5 will be a great time to own live video rights.

Just as the Netflix streaming era sparked a golden age in TV dramas, we may be on the verge of entering a golden age in live video.

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