Online video met cable and broadcast in a big way in 2012, setting the stage for an even bigger 2013.
We live in interesting times, and we wouldn't have it any other way. Gone are the days when pay TV channels and Blockbuster provided our only video entertainment. We're on the road to somewhere completely different, but we're not there yet. Who will be the dominant media companies in the new connected age? How will we access our favorite shows? Where are the fortunes just waiting to be made? Plenty of companies are trying to steer the direction, but it's up to the viewers to decide who wins and who loses.
The media and entertainment world was a fascinating place in 2012, showing the emergence of new power players and methods of discovery. We saw plenty of big deals that may pave the way for the entirely new viewing experiences of tomorrow. We'll survey the year behind us and foretell the year ahead by looking at key events from 2012.
TV Everywhere Was Everywhere
"TV Everywhere" is typically written with a capital E, as though it were a policy or a plan put in place by some corporate or government overlords. It's not, though. TV Everywhere is an idea -- the idea that online video is taking off, and the established premium content providers should have a stake in it.
To make sure that online video remains tied to the current pay TV companies, TV Everywhere was created. It requires authentication to view much premium content online. That means that viewers need to prove that they have a pay television account in good standing to view premium video online.
It's the pay TV industry's response to cord-cutting, and it gained a lot of ground this year. If broadcast networks and cable channels simply put their content online once it had aired, that might encourage people to trim their cable bills and live off streamed content, instead. TV Everywhere's authentication stops the free access by requiring pay TV accounts.
To some, that's anti-competitive. Others wonder why cable and satellite companies -- not even a middleman in this transaction -- should have a hand in online streaming, at all. The reason, naturally, has to do with money.
"I think authentication is absolutely here to say," said Sam Blackman, CEO and co-founder of Elemental Technologies, Inc. "I'm personally in favor of high-quality content, and the reality is that somebody has to pay for that content."
Networks and other content creators want to keep their deals with pay TV companies healthy, so they need to help protect the revenue stream for those services.
"if we want to have amazing video, we've got to be willing to pay a little bit for it," Blackman said. "Good quality content is not cheap."
TV everywhere showed up in several places in 2012. In May, Hulu revealed that it would require authentication even for paid accounts. Perhaps not surprising, given that Hulu's owners include NBCUniversal, Fox, and Disney/ABC Television Group, but it was one of the more extreme attacks on cord-cutting and -shaving. Perhaps Hulu is paying the price for it, though. While Hulu said in an end-of-year blog post that its revenues grew by 65% in 2012 and it had 3 million Hulu Plus subscribers, comScore, Inc. video rankings show that it's no longer the ad powerhouse that it once was. While Hulu was long the dominant online video ad streamer, comScore's video ranking showed that it was regularly eclipsed by BrightRoll, Inc. and Google later in the year.
In June, Disney brought TV Everywhere to mobile devices with three iOS apps. Each offered limited content for all users, but full access to Comcast Xfinity TV customers.
The Olympics Were Authenticated
The London Olympics was by far the biggest online video streaming story of the year. Viewers around the world were treated to live views of the events, even events that weren't popular enough for television broadcast. In the United States, NBC again purchased the coverage rights. While the broadcaster did a Herculean job in streaming more than 3,500 hours of live coverage, its coverage of the games was not without controversy. The biggest uproar had to do with the network's decision to delay the more popular events for prime-time airing. The problem is that in our digital culture, viewers often heard who had won the events before they had the chance to watch them.
Also controversial, although not as unpopular, was NBC's decision to require pay TV authentication to view the Olympic online streams. Cord-cutters were out of luck, and it wasn't clear to many why an over-the-air broadcaster would put up roadblocks in service of the pay TV industry.
"You make people do something before watching a video, they're going to be upset over it," said Rick Cordella, NBC Sports Group's senior vice president and general manager of digital media. "We understand that. Our business model is set up in a way that we're partners with our MVPDs [multichannel video programming distributors] and it's part of the overall business model of the Olympics: cable companies are paying the freight for some of it. So TV everywhere is a derivative of that."
The Olympics were seen as a huge success for authentication, as many viewers new to online video went though the authentication process. Many others learned what a virtual private network was, as they did what they needed to view the BBC's online streams.
The Olympics were the high point of the online video year in 2012, but they also brought the year’s harshest criticism.
"It's unfortunate people are trying to work around it. Honestly, it's quite easy. If you know your credentials, you know your log in, you get in," said Cordella. "There's no incremental fee for you to do it. I think some people just saw that as a deterrent and they went a separate direction. The hope is, as we continue to evolve, that TV everywhere, as we head into Sochi and later on Rio, has become second nature to people and it's not a big deal."
The Olympics were a huge opportunity for the online video industry to prove itself. Companies jumped at the chance to take part. Blackman is pleased to say that Elemental streamed video for eight customers to 70-plus countries on four continents, ultimately delivering more than 600 million streams.
"It conclusively proves that it was the first purely digital Olympics. If you look at the number of views over IP devices, it was just a huge number," Blackman said. "I think it proves that the internet can scale for large events. In the past, when there's been large scale events where literally millions of people watch, there's been problems with buffering and low frame rates. With the Olympics, that really wasn't the case."
Big Deals Were Signed
To understand how the business of online video changed in 2012, look at the big deals that were signed. Previously, major networks and studios dipped a toe in the water. In 2012, they cannonballed.
Netflix started the year in a weak position, fresh off some self-inflicted mistakes in the fall of 2011. While its subscriber numbers were healthy, those in the industry were looking to see if Netflix could gain major label first-run movies for its customers. If not, the subscription video-on-demand leader might fade away like the Blockbuster chain.
In February, Netflix signed a multiyear agreement with The Weinstein Co., gaining access to respected films such as The Artist and the Oscar-nominated documentary Undefeated.
"We couldn't be happier to be working again with Harvey and Bob, who have an unmatched track record of creating critically acclaimed and commercially successful movies," said Netflix's chief content officer Ted Sarandos.
Xbox Live Gold members who were also Comcast Xfinity subscribers gained streaming access to HBO and MLB.TV in March. YouTube signed a license agreement with Paramount Pictures for nearly 500 titles in April. Titles included some new films, such as Hugo, available for 48-hour rentals.
The cable and online worlds collided in May, when Discovery Communications, Inc. purchased online video network Revision3. While the deal was the first of its kind, it seemed natural since the two companies share an audience interested in science and technology.
"Discovery's mission to ignite viewers' curiosity and its history of pioneering new platforms -- from cable to HD to 3D -- make it the logical leader in this explosive new wave of digital video growth," said JB Perrette, chief digital officer for Discovery Communications.
Cable and online video collided in May, when Discovery Communications purchased Revision3.
The biggest surprise of the year, however, came at the end. In December, Netflix announced that it had signed a deal with Disney for first-run and older movies. Classic Disney films became available to subscribers immediately, direct-to-DVD releases began in 2013, and new theatrical releases will begin appearing in 2016.
But the deal isn't limited to Disney studio content. Because Disney owns Pixar and Marvel, Netflix gained access to their titles, as well as upcoming movies from Lucasfilm Ltd., which Disney was in the process of acquiring at the time the deal was announced.
"Over the year we've continued to build the Netflix catalog. The most recent deal was Disney, which was a landmark deal for us," said Joris Evers, Netflix's director of global corporate communications. "It was the first time that Netflix has signed one of the six major studios, and it's something that validates OTT as an alternative to premium cable channels."
While much of the attention in the subscription video-on-demand space is on gaining premium movies, Evers said that television episodes get more play.
"On Netflix, people watch more TV shows than they do movies," Evers said. About two-thirds of viewing time is TV shows; only one-third is movies.
Since TV shows get more airtime, Netflix's plans for 2013 make perfect sense. The service has already experimented with running original series with "Lilyhammer," but that show was produced and largely finished before Netflix got to it. In 2013, Netflix will show programs that it shepherded from the beginning.
"2013 is really the year of the Netflix originals," Evers declared. "We had Lilyhammer on Netflix in 2012 and it was a great start for us. We'll have House of Cards in February, then three others following that: Arrested Development, Orange Is the New Black, and Hemlock Grove."
As with Lilyhammer, Netflix will make all the episodes of a program available for viewing from the start. That's helping popularize a new expression for our times: binge viewing.
Broadcast Met IP
One theme of 2012 became obvious at the National Association of Broadcasters conference in Las Vegas in April. Suddenly the show floor felt flooded with new big project solutions for letting broadcasters unify their broadcast and IP workflows, or stream broadcast content online. It was as if the big networks and studios all at once decided that there's real money in this internet video thing.
A few months before, at the Mobile World Congress in Barcelona, Spain, Adobe unveiled its own entry in the field: Project Primetime. Adobe used technology it gained from acquiring Auditude to create a platform that at first offered ad insertion, content protection, and analytics. Adobe built that up in a series of announcements through the year: Primetime gained seamless ad integration at The Cable Show in May, it was used to create highlight clips for the BBC during the Olympics, and the whole platform entered beta in November.
"The big change that we see is that online video isn't an experiment and it isn't marketing anymore," said Ashley Still, director of product management for video solutions at Adobe. "It really is a part of [the broadcaster's] business. The shift really started in 2012 and will accelerate in 2013. TV channels are coming online and there will be more TV channels online in 2013."
Adobe hopes broadcasters see the value of the complete solution it's creating.
"One of the things that's very true is when you're talking about TV there's a level of quality and an expectation of being able to monetize that content," said Still. "It's very hard to get consistent quality and monetization when you have a bunch of point solutions that don't work together very well. There's more focus on integration because the experience has to feel like television. If it's not an experiment anymore, the bar increases on being able to make money through ads or subscriptions."
Look for 2013 to be full of big content deals with big checks behind them. The race now is to provide premium entertainment and to make the whole experience feel as easy as television. But keep your eyes out for the interesting smaller players; they're the ones that could change the whole direction overnight.
This article appears in the forthcoming 2013 Streaming Media Industry Sourcebook.
