I have seen a lot of discussion lately about the state of digital video - which models will be victorious, which brands will win, will consumers completely cut the cord? Mark Suster, a Los Angeles area based Entrepreneur turned VC, offers one of the more provocative and interesting perspectives I’ve seen about one of the key players, in a post he wrote recently, “Why Hulu is the OPEC of Online Video.” In it, he posits that Hulu was set up by key stakeholders of the industry as a defensive maneuver to protect the TV industry from being disrupted by the video industry’s version of Napster. The theory being, provide consumers a high value product with a wide selection of exclusive content and build a strong enough brand that it will stave off competitors who are delivering unlicensed options. And, by so doing, control the pace at which digital gets rolled out to the masses, while still appealing to the niche group of techno-geek content junkies. Suster’s comparision of Hulu to OPEC focuses on that both are “cartels” (of sorts) that restrict supply, cheat among themselves, and innovate slowly. The parallels are fascinating and I encourage you to check out the full post (check out some of his older posts as well, especially if you are interested in digital entertainment).
There is one major difference, though, between Hulu and OPEC - the “consumer” of video content has a lot more power against the “cartel” than the consumer of oil does. While, in theory, we’d love to break our dependence on foreign oil in this country, it is virtually impossible considering the interdependencies. The same does not hold true in digital entertainment. The consumer is very much in the driver’s seat, and they don’t really care what goes on behind the scenes to get them the content, as long as they get it when they want it. Nor do they care that the TV industry is figuratively and literally caught in between a rock and a hard place. The figurative rock being the beneficiaries of the current model (network affiliates, MSOs) and the hard place being the catalyst of the new model – the consumers themselves.
To provide some additional perspective on the consumer, we released a study today, “TV Everywhere Revisited: How Distibutors, Advertisers and Content Owners Should Respond to Consumer Trends” in which we look at consumer trends in online video viewership. This is a follow up to a study we did last year. Not surprisingly, we have seen online video, streaming in particular, grow over the last year. At the same time, linear TV viewership has seen a decline, most prevalent among streamers. In fact, we found that the audience of consumers who stream television content, but DO NOT subscribe to a pay TV service, has increased by 18% in the past year – a powerful indicator of the potential impact online video streaming may have on convincing consumers to cut the cord. The study also reveals that consumers are motivated more by convenience than avoidance of advertising when turning to online viewing options. Good news, indeed, for advertisers and the Hulus of the world. But, the study also exposes a cautionary bit of information for advertiser-supported models - Netflix as a streaming service is growing at a very rapid pace, suggesting their subscription model is gaining momentum with consumers.
Back to the OPEC analogy. Suster suggests that the Hulu cartel will struggle to survive unless the studios take a lesser stake. His contention is there are just too many competing influences among the studios to simultaneously roll out a digital choice and cater to their individual objectives. I see his point, but I’m not entirely sure I agree with it. Lets not forget that Hulu was the first service to deliver a high value streaming service, which is not a small feat. I do agree that any service is challenged given the fickle nature of consumers, but this race is far from over. The studios, while concerned about killing the cash cow, are smart enough to cultivate other revenue streams. Hulu has also developed a strong brand in a very short time period, and provided they are well capitalized, they should be able to benefit from the equity they’ve established in the minds of consumer. With all this talk about OPEC, one thing I can say for certain, I wouldn’t mind envisioning a future in which the consumers of foreign oil rose up and challenged OPEC, breaking our dependence on foreign oil!