Content Wars 2.0

By David Danna - June 18, 2012 | Tickers: AMZN, DISH, GOOG, NFLX | 0 Comments

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Last month Dish network (NASDAQ: DISH) announced a new feature for their customers called Auto-Hop. This feature can record all of the big four channels primetime TV programming and then a few hours after the programing has initially aired, Dish network customers can watch the TV shows without seeing any commercials. Reviewers raved about this new feature and it won the PC Magazine’s Editor’s choice award. Unfortunately the networks haven’t been terribly pleased with this new technology being rolled out to millions of users. Fox, NBC and CBS have all filed lawsuits against Dish, claiming copyright violations. Dish has counter sued in an attempt to establish the legality of their ad skipping technology. Regardless of how this legal battle gets settled by the courts, the TV and movie content industries are shifting and that shift is away from traditional cable to online streaming.

There are several large players in the online streaming world; Netflix, Hulu, Amazon and Google are four of the largest players. Key to these platforms long term success is not only building up a back catalog of popular TV shows and movies but also original content. Netflix (NASDAQ: NFLX) will spend roughly $1.8-2 billion for content in 2012 which is double what they spent in 2011. Content acquisition is critical for Netflix if they want to remain the market leader and satisfy their nearly 25 million users. This is ever more the case as Google (NASDAQ: GOOG) is building out 100 content channels on YouTube and Amazon (NASDAQ: AMZN) is directly targeting Netflix with their Amazon Prime offering. Prime now includes thousands of movies and TV shows for instant streaming with no ads just like Netflix. Amazon and Netflix will also directly compete in Europe where Amazon owns a Netflix like service called LoveFilm. Netflix and LoveFilm are both available in the UK right now.

At the moment Netflix has far more content than Amazon, but Amazon can afford to build out their content library without turning a profit on it for some time. Content makers are also looking for an alternative to Netflix which Amazon can be. Additionally, Hulu still has the best offering of newly aired TV shows and they offer a free ad supported more limited version of Hulu alongside their monthly Hulu Plus service. Hulu Plus offers far more content than the free Hulu offering, has fewer ads, and is priced at $7.99 per month. The exact same price as Netflix’s streaming only service.

Even more intriguing than online TV and Movie streaming and the potential perils faced by traditional cable content providers is the original content that all of the main online streaming companies are acquiring. The strategy is that with original content only available in their service it will be another hook for customers to not switch to the competition, especially if the new content is addictively good. The companies also do not have to worry about renewing ever pricier short term content deals with content makers if they own some of the content. Their own content would always be available and they could ever expand their content offerings.

Netflix specifically entered the original content business because they saw their current sources of content as unreliable according to their chief content officer. So Netflix looked at what was already popular with their customers and looked into investing directly in similar content. Thus far Netflix has at least five shows planned for the United States. The first of these was Lillehammer, which was an international show and Netflix acquired exclusive rights to its distribution in the US. The first season of Lillehammer was released all at once, with no ads in the Netflix tradition on their site.  Additional original or exclusive content coming to Netflix includes House of Cards, a new season of Arrested Development and Hemlock Grove. Netflix CEO Reed Hastings said that going forward 5-15% of the money Netflix spends on content will be on original content. Netflix is not alone when it comes to acquiring original content; Google is pushing original channels on its YouTube site.

In fact Google announced a 100 million dollar initial investment in original content for YouTube that is designed to bring 25 hours of original content to YouTube every day starting this summer. This money will create 100 YouTube channels staring Hollywood actors and producers. It’s a chance for them to create shows without having to deal with traditional content company medaling. These shows will largely be shorter than traditional TV shows and will be ad supported. With channels featuring well known personalities like Tony Hawk, this new direction for YouTube could not only be a good move for the YouTube site it could also be a feature in a future Google TV.

Amazon has also jumped into original content through their Amazon Studios offshoot, which has announced that it will be making a comedy and children’s series for distribution through Amazon Instant Video. Amazon is not taking ideas that didn’t quite make it to TV or got canceled like Netflix did with Arrested Development. Amazon is allowing producers to submit their own original ideas for a TV show. If Amazon decides to back their idea, the creator will receive $55,000, up to 5% on all merchandise and other bonuses. Amazon has roughly fifteen projects they are working on and this original content could not only come to the Amazon Instant Video service here in the US, but to the UK based LoveFilm. The new content could also be featured through the Amazon Kindle Fire tablet; all of these would be different avenues for Amazon to showcase their original content.

Google, Amazon and Netflix are all serious about launching their own original content as is Hulu. This will further complicate the content landscape. Instead of subscribing to Netflix because you can see virtually any TV show you want to, you will now be missing whatever content that is only available from Amazon. This is on top of the fact that some traditional content providers are choosing to only make their content available through one of the online providers. Some are creating their own Netflix alternatives which creates fragmentation in the online content space. Though popular original content will be a good thing for Netflix and other consumers may need multiple subscriptions to get all the content they want, it will remain cheaper than what most people are paying for cable.

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