TechMediaTalk

Netflix and Amazon – A fork in the money trail for Internet video?

Posted on | January 15, 2009

Netflix, Inc.
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What do Netflix, Amazon and Apple have in common?  

At least three things:  One, they are all companies with deep pockets; Second, they have invested in devices to converge Internet video with television (the first two are undoubtedly related); Third, and most importantly, they are deploying paid or subscription services.  There is a fourth commonality – they are targeting commercial long form content.  All in all, their service model is very traditional not unlike television and VoD services, albeit using the Internet, targeting content and usage behavior that is well understood.  

Image representing Amazon as depicted in Crunc...

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There is a traditional decision making ‘rule’ called “follow the money”.  Netflix, Amazon and AppleTV are deploying a content acquisition model that consumers are very familiar with.  I expect there will be a relatively fast adoption across a broader market base, even compared to online video to the PC.  With iTunes the exception to the rule, it has generally been considered inconceivable that paid Internet TV services to the PC would be a viable business. I don’t think it is a coincidence that barring certain niche markets, paid video models are largely absent in online video to the PC.  The irony is compelling, and while I agree the jury is out on these paid services, it will be interesting to watch the market unfold in 2009.

If Internet video starts looking more like traditional television, it may bode well for Internet video advertising also.

Where does this leave the advertising discussion related to Internet video?  From a “follow the money” perspective, Internet video advertising is a new phenomenon.  While nobody likes advertising, Internet users are particularly averse to advertising.  In the world of television, consumers have learnt to generally accept advertising. Despite the buzz around DVR’s, they constitute only 27% penetration - meaning the vast majority of TV viewers don’t have the ability to skip commercials.  The success of Internet advertising, on the other hand, has been mostly for search related advertising (classifieds and email marketing being the other major components).   It has evolved as search has evolved.  There are few tradeoffs; users can ignore such ads; and in many cases actually welcome these ads as added value to the search.  On the television, pay per view and paid VoD has been around for some time, in addition to paid cable and satellite subscription services.

Much as I am optimistic that Internet video advertising will prevail, there is work to be done here.  It will take some time because user behavior takes time to change, even though most users say that ads are a good tradeoff for free content.  There are a few road bumps on the money trail there.  However, while the prevalent idea for some time has been that paid Internet video services are mostly non-starter, the combination of factors that the companies mentioned above have been able to marshal (device support to TV, content licensing, and their market presence), may well prove otherwise.  The success of these services may well translate to increased viability of paid models making their way to Internet video services to the PC.  

Actually, from an Internet video perspective these services seem rather banal given all the things that can be done with Internet technologies (see my article on Video non-linearity in the upcoming issue of Streaming Media magazine as an example).  However, they are using a well beaten path (sorry for the mixed metaphors with money trail and all that) of premium content to television with a subscription/paid model, albeit the path is using the Information superhighway.

What do you think? Start a discussion below.

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Category: Advertising, Aggregators, Content, Devices, Movies, VoD

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