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OTT’s Dynamic Duo Ruled Q4, But Clouds on Horizon

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Looking back at online video’s fourth quarter, it’s clear that the two-stroke engine of Netflix/Hulu continued to chug away, even if there were increased signs of strain. Hulu revealed in November its revenue was expected to more than double in 2010 over 2009, while  Netflix indicated it had hit nearly 17 million subscribers and also continued to ink deals, such as the one with Disney/ABC.

But make no mistake, the load is getting heavier for both companies, as I detail in our newest Connected Consumer quarterly wrap-up (subscription required). Big media made it clear during the fourth quarter that it intends to beat back the upstarts putting a dent in their bottom line, and the most obvious weapon at their disposal is increased licensing costs. Take the comments by Time Warner chief Jeffrey Bewkes, who, by bemoaning the fact that “once you put it on Netflix, you really can’t sell it anywhere else,” indicated that a repeat of Netflix’s early low-cost licensing for premium content is not in the offing.

And while Hulu ad impressions grew, the fourth quarter showed early Hulu Plus demand has been soft. This resulted in Hulu dropping the price for the pay-service in November of 2010, just a few months after launch. Perhaps the biggest question going forward for Hulu Plus will be if a broad array of consumers will subscribe for a VOD over-the-top service to get a broader array of TV content, or just wait for it on DVD and streaming through Netflix Watch Instantly.

The two online video giants didn’t monopolize all the action in the fourth quarter, as the last few months of 2010 saw a fuse lit under the smart TV and connected entertainment platform marketplace that resulted in the explosion of announcements at CES. Of particular note was the launch of the first Google TV device on October 6, and the collective groans over what many saw as a confusing and cluttered interface. The reaction caused Google to do something practically unheard of: tell hardware partners to delay showings of its Google TV devices at CES.

The news of Google’s stumble no doubt caused smiles in Cuptertino, as Apple just had to let us all know a few days later it had hit the 1 million unit shipped milestone with its new $99 Apple TV. And we shouldn’t forget Samsung, who has been the most aggressive of all smart-TV vendors, with the delivery of its third-generation connected TV line in 2010 and the aggressive courting of TV app developers with its $1 million app-TV challenge.

If you’d like to get caught up on all that  transpired in the fast-changing online video market in the fourth quarter and see what we expect to happen in coming months, head over to GigaOM Pro for our latest Quarterly Wrap-Up.

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