Cable Technology Feature Article
Netflix, YouTube: Leading the Mainstream, Post-Cable Era
By Tara Seals, TMCnet Contributor
Online video was once the domain of younger folks questing after viral video fame and techies. But those days seem as far gone as the black-and-white TV era of the ‘50s, as usage numbers soar and multiplatform video use continues to expand. With Netflix and YouTube commanding cable-level audiences, online video and TV has arguably crossed the chasm into the mainstream, led by original content and opening doors for new advertising models.
Netflix said in its first quarter earnings that it signed up two million new customers for its $8-a-month U.S. streaming service, bringing it to a total of 29.2 million members: a larger subscriber base than HBO. Meanwhile, YouTube has more 18- to 34-year-olds watching than any cable network. It also enjoys one billion unique monthly visitors, connecting 15 percent of the planet.
“Those global fan communities are watching more than 6 billion hours of video each month on YouTube; almost an hour a month for every person on Earth and 50 percent more this year than last,” said Robert Kyncl, YouTube's global head of content.
The Connected Device Effect
Part of the uptick for streaming video usage is the penetration rate of connected consumer devices and faster broadband to support streaming experiences with Quality of Experience. NPD Group recently found that 47 percent of home entertainment devices (defined as Internet-capable TVs, Blu-ray disc players, video game consoles and streaming media devices) are now connected and being used for their online capabilities.
"While there are more Blu-ray disc players installed and connected to the Internet than streaming media players such as Apple TV and Roku, we expect that to change in the next year," said John Buffone, director of devices, NPD Connected Intelligence. "Streaming media players will exceed the number of installed and Internet-connected Blu-ray players in 2014."
Multiplatform is on the rise as well: Overall, a little over a quarter (27 percent) of adults in the U.S. are watching streaming video on devices other than a TV set daily, according to Leichtman Research Group (LRG). That balloons to about half (53 percent) doing so on a weekly basis. These non-TV devices include home computers, mobile phones, iPads, tablets and eReaders.
But taking a look at the 18-44 demographic, it turns out that 42 percent of them are watching streaming multiscreen video daily, and 77 percent weekly – a staggering number in the grand scheme of things.
That’s not to say that they’re turning their back on traditional TV though. The analysts say that multiscreen is more of a complement at this point to cable and satellite than a competitive threat. "Video watched on non-TV devices and via connected TV sets has significantly increased over the past few years, particularly among younger individuals," said Bruce Leichtman, president and principal analyst for Leichtman Research Group, Inc. "Consumers are generally using these new viewing options to complement traditional TV viewing at home."
As a barometer, Netflix said in its earnings call that it plans to introduce a new subscription plan in early May for $11.99 per month to allow four simultaneous streams from the same account, up from the existing cap of two for $7.99 per month. However, it expects less than 1 percent of members to sign up for it.
Original Content Leads Netflix, YouTube to Dominate
Original content is arguably forming the backbone of usage for online video. With House of Cards, Hemlock Grove, Arrested Development and Orange, Netflix is working on a "redefinition and broadening of what Netflix is,” according to CEO Reed Hastings.
And it’s paying off, apparently: "The launch of 'House of Cards' provided a halo effect on our entire service," Netflix Chief Executive Officer Reed Hastings and Chief Financial Officer David Wells said in a letter to shareholders following its earnings.
The company also said that another original series, "Hemlock Grove," exceeded the viewing rates of the first few days of "House of Cards.” No specific viewing numbers were provided.
The significant shift in strategy toward investing in original content could elevate Netflix from “TV complement” status. Benedict Tubuo, Beevist analyst, said in a Seeking Alpha note, “By allowing its deal with Viacom to expire, Netflix clearly demonstrated its preference to move away from the all-you-can-eat model to an a la carte model that allows it to pick and choose the content it buys. This approach, coupled with its new emphasis and early success with original content, should position Netflix to become a premiere source of home entertainment rather than a complement to cable.”
Tubuo noted that if this redefinition is successful Netflix will have effectively threaded the needle on the content conundrum.
“This shift is an obvious side effect from increasingly belligerent content providers who realized that Netflix was becoming a threat and decided to play hardball to protect their turf and prior relationships with cable providers,” Tubuo noted. “The new phase of selected content and original shows puts Netflix in direct competition with a rich variety of very capable companies like Comcast, Time Warner Inc., Amazon, Microsoft (News - Alert), Sony Corporation and Coinstar Inc., just to name a few. Minus live shows, the New Netflix is a premium, cheaper and more convenient alternative of cable.”
Not to be outdone, as part of its NewFront event, Google CEO Eric Schmidt said that in terms of YouTube usurping TV, “That's already happened."
Across devices, LRG found that 33 percent watch any over-the-top content daily, and 59 percent weekly -- compared to 17 percent daily, and 41 percent weekly two years ago. Netflix streaming video households account for 58 percent of weekly TV show viewers. One-fifth, or 22 percent, of all adults stream Netflix video weekly -- compared to 4 percent in 2010.
NPD’s results dovetail with that finding. The firm found that 40 percent of TVs connected to the Internet are used to watch Netflix streaming, either through the TV itself or through another device. Nearly one in five are used for YouTube video (17 percent) and one in 10 to watch video on Hulu's (News - Alert) ad-supported or Hulu Plus service (11 percent).
"Content usage remains dominated by Netflix and YouTube," said NPD’s Buffone. "An opportunity for digital distribution lies in enticing consumers to plug in to the Internet and download the apps available on devices they already own."
That’s not to say that others won’t soon enjoy similar success as consumers embrace online video as the new normal. “Netflix grew on disruption and should appreciate that success might not only lead to copycat imitators, but might lead to imitators that actually provide similar services that disrupt its business model,” Tubuo said. “A good example of this is Aereo, a service that captures freely broadcasted live TV and digitally retransmits for a fee.”
Business Model Evolution
All of that usage, and the fact that it’s a digital medium with opportunities for cross-app integration, social media functions and other interactive engagement models, makes online video the next frontier for content monetization as well.
At the NewFront, which YouTube dubbed a “brandcast,” Schmidt noted that the service "is not a replacement for something that we know," he said. "It's a new thing that we have to think about, to program, to curate and build new platforms."
By nature of it being digitally distributed, interactivity is one of the differentiators, execs said. "I thought that YouTube was like TV, but it isn't. I was wrong," said Kyncl from the event’s stage. "TV is one-way. YouTube talks back."
And that, he noted, means new advertising opportunities. “Much like our content creators, we find that brands on YouTube--like T-Mobile (News - Alert), Samsung, Dove and Pepsi--all share a common objective: to cultivate a direct relationship with their consumers--one built on engagement and authenticity,” he said. “These companies know that on YouTube, it isn’t just about rallying behind one show; it is about reaching the passionate fan communities of Gen C, an audience that influences more than $500 billion in annual consumer spending. As a result, we’re seeing a myriad of brands increasing their media spend, building channels and discovering first-hand that the interactions they have with their fans on YouTube drive engagement.”
However, right now there are very few ways for third-party measurement to be applied to the digital world—i.e., ratings. The market relies on what properties themselves report, and what online ad networks release.
A holy grail is of course to cleanly compare the reach of online video media to other media -- principally TV. No surprise then that Nielsen is testing a tool to measure online viewing of TV shows, to improve how it tracks digital audiences. The ratings company has signed up NBC, FOX, ABC, AOL (News - Alert), Univision, Discovery and A+E for a pilot program to test a new service, Nielsen Digital Program Ratings.
Eventually, Nielsen said it will add mobile viewing measurement as well, with the ultimate goal to provide a way to measure audience viewership across all screens—television, mobile and the Web—in order to build advertising packages that take into account the multiscreen nature of today’s video viewing habits.
In February, Nielsen also said that it was Nielsen working with ad network Tremor Video to integrate Nielsen Online (News - Alert) Campaign Ratings’ gross rating points via VideoHub for Advertisers. By combining the standard GRP metric used in TV advertising to online video performance, advertisers using VideoHub should be able to see what demographic audiences their campaigns reach online. The VideoHub ad platform then lets them track response.
Edited by Rachel Ramsey