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Summary:

The streaming video industry continues to undergo radical transformation. Kun Gao, of Crunchyroll, points to four things to look for in the coming year.

streaming media

Last week’s multi-year licensing agreement bombshell between Disney and Netflix was a capper to an already dynamic year for streaming media. Clearly we’re at an exciting crossroads, fueled by “make-ups and break-ups” that constantly reshape the industry. Given the activity of the last four quarters, here are a few things to look for in 2013.

Globalization of professional content

The act of taking premium content across borders to reach new audiences has proven to be a boon: It generates meaningful incremental digital dollars through subscription services;  it legitimizes a content experience that previously had been dominated by online piracy; and it builds momentum for content and brand equity for the coming years.

Ironically, it is the home market that sometimes moves the slowest. While not all territories are equally profitable, content is traditionally sold in a segmented manner siloed by language and country. Being able to slowly unfragment these rights through global expansion provides scale and future upside that is worth investing in today; this de-fragmentation will continue the efforts to globalize more professional content at an increased pace.

Monetization via subscription

Subscription will continue to be the dominant business model. Viewers have demonstrated that they recognize significant value in having access to premium content across their continuingly connected digital lifestyle – and are much more willing to pay for convenience of access on devices. This month’s retail activity showed all-time highs in consumer spending towards a personal device experience. Monolithic subscription services such as NetFlix and Hulu, which generate $8 ARPU per month, will be challenged in a market where DirecTV and DISH generate on average $80 ARPU per month.

What hasn’t changed is the demand for professionally produced content, which still costs just as much to create. Today’s market data has proven that users are willing to pay top dollar for traditional Hollywood quality content – but a mere $8 a month simply isn’t enough to support creating it in the same volume as we do now. One of the ways to reach a happy medium then is through targeted channels of in-depth content.

Channels of in-depth content

Channels will become much more targeted and personalized. Over 60 years ago, broadcast television introduced channels 1-10 in the U.S., and, furthering this momentum, channelization provided channels 11-1,000 via cable and satellite in the 1980s. As this decade is earmarked by seismic technology and media changes, the next few years will be laser-focused on creating the next 100,000 channels – delivered across a mix of broadcast, cable, mobile and smart TV apps – each tailored for a set of unique lifestyles.

Do you enjoy fly-fishing, building replica battleships, or perfecting your Portuguese? The next 100k channels are all about delivering a deep and targeted experience that was previously not possible, because the audience was fragmented geographically, the high fixed costs of creating a new cable channel were prohibitive, or the behavioral targeting was not possible. Viewers of highly targeted and in-depth content experiences are more than willing to dive in and pay.  These experiences are much more than simple online video delivery and make up a unique social and lifestyle experience.

Redefining e-commerce

There will be significant progress made towards a new monetization model beyond the traditional ad-supported and subscription service ones. The American household spends, on average, nearly five hours per day watching video content. As such it is one of the best methods we know for generating product interest.

However, the one-way push model also happens to be grossly inefficient. Online streaming has the opportunity to revolutionize the way products accompany content, and are ultimately introduced to viewers. The opportunities are boundless when one thinks of how awesome an experience it would be if we can realize the full potential of combining streaming video and e-commerce – a next-generation Home Shopping Network layered on top of any content. After all, what is video but a medium for the aspiration of product, lifestyles and experiences?

Kun Gao is CEO and co-founder of Crunchyroll, Inc., a global video network for Japanese anime and Asian media.

  1. I agree with these predictions and I’d add more dynamic video viewing meaning you can watch things from multiple angles in non-glasses-needed stereoscopic 3D.

    Jon
    Founder of CNCKing.com

  2. Nice piece, Kun Gao, though I disagree with your conclusory hypothesis: “After all, what is video but a medium for the aspiration of product, lifestyles and experience.”

    Great video, to the extent that it expresses the eneffable, is art.

  3. Good article, Kun.

    Grouping like genre’s of content into a playout stream is what channelization is all about. What (and when) to put into playout of the channel is best served by behavioral targeting. While the “demographic” is a failed metric for determining ranking for channel matchups, behavioral targeting is workable if (IF) the IP address, content, advertisements and popular opinion can be assessed with a *common* metric.

    With such commonality, backprop testing, modeling and prediction are achievable through any number of adaptive statistics platforms (fuzzy logic, bayesian nets, etc.). That would allow the creators, distributors, accountants and consumers to enjoy the benefits of B2B, B2C (or even C2C) with multiple revenue streams.

    The assumption that “behavioral targeting is not possible” was a popular notion among those not skilled in the art. I submit to you that it is not only possible, but it is actually a functioning, verified algo stack ready for deployment. If anyone is interested in a lot of reeeeealy boring reading on the concepts and proofs of BT, please feel free to contact me or Mark at Streaming-Appliances.com for more info.

    Thanks,

    Robert Reams CTO Streaming Appliances LLC

  4. I enjoy these end of year predictions. But I question whether “Viewers of highly targeted and in-depth content experiences” are actually willing to pay for that sort of content. It would be great if you could reference a few profitable success in the category. During my time in the online video business I have watched many niche or “long-tail,” as we used to say back in the day, try to go digital only and it has rarely worked. The production costs make it difficult to build a dedicated, digital only channel focused on fishing, or say shipwreck exploration. Off the top of my head I can think of Lynda.com and CreativeLive – training, education programming.

  5. I’ve been told for decades to watch what my kids are doing to see where the future is headed. If I had I would have made millions (okay, thousands) in Apple, Game Stop, etc.

    My son was previously a Netflix subscriber. Now he downloads every movie for free on sites such as Movie2K. I see this as the future. Why pay when you don’t have to?

    What is your opinion, how can these sites make money, and who is poised to be the dominant player in free downloads, if anyone?

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