Endeavour Partners

One of the most important developments for network operators is the growth of “over the top” services. This can take several forms, as better connectivity and more capable devices leads to a shift from ‘dumb devices + smart switches’ to ’smart devices + dumb switches’:

• fixed voice moves to VoIP
• much video content moves from broadcast linear channels (conventional TV) to be time-shifted (and increasingly place-shifted), with the notable exception of really live content, such as major sports
• in mobile phones, the advent of smartphones demolishes the ramparts of network operators’ walled gardens, and applications can increasingly be accessed without working through the ‘deck’ on the ‘phone

According to Silicon Alley Insider, we have apparently reached an interesting inflexion point: the ‘over-the-top’ platform Hulu (strapline – Watch your favorites. Anytime. For free.) now has more unique viewers than Time Warner Cable, ranking 3rd behind Comcast (strapline – High-Speed Internet, Cable, Phone …) and DirecTV (strapline – Good TV. Better TV.

Hulu vs Pay TV

This analysis relies on factoring up cable subscriber households to match unique online viewers, so it may if anything overstate the numbers of unique viewers for cable companies:

To calculate cable viewers, we multiplied their end-of-June video subscribers by 2.59, the U.S. Census Bureau’s most recent stat for average persons per household.

There is a major shift underway, which is going to have a profound impact on business models throughout the video content ecosystem. Silicon Alley Insider believes that Hulu may have a strong future, but implicitly only if it sustains the revenues (and business models) of content producers:

Hulu is increasingly making a strong case that it could be the video platform for the future — if it can ever create nearly as much revenue for content producers as cable companies do today

This has been the subject of intense debate in the office, and last week in meetings with a couple of clients. As one of my colleagues put it: “where’s the money going to come from for high production value TV shows like ER and Lost“? Here’s where I at least think Silicon Valley Insider may have got it wrong; there’s no immutable law of nature that says we have to preserve revenue for content producers.

New business models for content distribution will also change the business models for content production. I am confident that the market will clear, that if consumers want this content then channels will emerge to funnel the money to producers; the corollary to this is that as we give consumers more choice about what, when and where they consume video content, what they’re prepared to pay for may be very different. If high production value dramas are to survive and thrive, they may need to find new ways to monetize their content, or new mechanisms to fund it.

Putting in the links to this post, I found two things intriguing:

1. when I searched for Lost I got a sponsored link for its final season…
2. ABC characterizes Lost under the category ‘primetime‘, a concept that may be rapidly eroding in significance

Google search for Lost