Saturday, March 31, 2012

Placing Bets and Making Cents of Convergence in an Era of Digital Distribution

How technology will determine the future of the media industry is an evolving conversation.  A variety of perspectives on the current media environment may offer some clues as to what the future holds, but while everyone is lining up their bets there still isn’t a clear consensus on who will be the winners. One thing is certain, though: success will greatly depend on who will control access to the flow of content.  

For all the talk of digital distribution, Media Shift argues that cable remains a profitable and dominant player, producing billions of dollars in subscription revenue per month.   Early speculation about cord cutting, or replacing subscription cable in favor of alternatives like Netflix, Hulu, or Apple TV, has simply not materialized in substantial numbers.  Instead, analysts have attributed losses in cable subscription rates to the recession:  fewer households mean fewer televisions for which to secure subscriptions.  Consumers are not abandoning the cable subscription model itself, despite price increases, the emergence of new competitors, and no shortage of dire predictions. 

Even personal devices like the iPad, widely speculated to portend changes in the way consumers interact with media, often find their users held within the subscription orbit via authentication, or the practice of verifying a paid subscription in order to access content.  Cable companies continue to hold tremendous power given that cable alternatives are at the mercy of the large media companies in acquiring licenses for programming.   Netflix’s failure to renew their deal with Starz has resulted in both the loss of a significant amount of content and increased pressure on the company.  Several cable providers have even introduced their own rival streaming services.   In response, Netflix has ventured into developing original content, which critics suggest is a potentially expensive and slow enterprise.   Shareholders recognize that access to content, as well as the ill-executed price increases enacted last fall mean the future of Netflix is less certain than previously anticipated.

If they can’t beat them, rumor has it that Netflix may join them: the company is supposedly in talks with cable operators to integrate into the cable model by adding Netflix as a subscription service similar to a premium channel that would appear on the cable bill.  Though critics contend this approach won’t solve Netflix’s content access problem, it could bring an increased number of subscribers.    

YouTube seems to be making the opposite gamble.   In an era of simultaneous audience expansion and fragmentation, YouTube is currently developing a portfolio of online niche channels of a type too expensive under the economics of traditional television.  They’re betting that the current media market is reminiscent of the early emergence of cable, which saw the offering of specialized channels laughed off by the same media interests that ultimately ended up purchasing them. 

If the past is any prediction, the only safe bet seems to be that access to content matters, and that consolidation and further acquisition are almost certain. 

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