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The State of Media and Entertainment 2016
All eyes are on Netflix, but it's facing more competition than ever. The OTT space is booming as new niche offerings appear on a weekly basis.
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The streaming space is teeming with experimentation in 2016. Media companies big and small have found that viewers are happy to add on an extra over-the-top (OTT) subscription or two if it gives them more of the content they enjoy. Major services try to please the whole family with original programming to fit every constituency. Smaller services provide genre-specific content for a niche audience, typically Millennials. Cable and satellite operators have realized they can join the OTT gold rush without cannibalizing their core audience, and new services seem to arrive on a monthly basis. Will viewers get carried away and need to start trimming their bills? That could be a trend for 2017, but this year is all about growth.

The big name in streaming entertainment for 2015 (and for the foreseeable future) was Netflix, which hasn’t made a misstep since Qwikster (well, that and Marco Polo). The subscription video-on-demand (SVOD) service distinguished itself with more original series, such as Narcos, Marvel’s Daredevil, Club de Cuervos (its first non-English production), and new seasons of House of Cards and Orange Is the New Black. It’s planning even more original content for 2016, including a daily talk show starring Chelsea Handler, a series by director Baz Lurhmann (The Get Down), and its first French-language production (Marseille).

Netflix rolled out to more markets in 2015, with debuts in Japan, Italy, Portugal, and Spain. However, its biggest news came during the 2016 CES conference, when CEO and cofounder Reed Hastings revealed that the company had just launched in 130 additional markets, including Russia and India. The service is now available everywhere except China (and Crimea, Syria, and North Korea, where it’s prohibited by U.S. law). With that sweeping announcement, Netflix became something we’ve never seen before: a global network. Can it maintain growth and satisfy the viewing preferences of all those different markets?

At CES 2016, Netflix CEO Reed hastings announced its availability in 130 countries while head of content acquisition Ted Sarandos (left) showed off a slew of new series, including a daily talk show starring Chelsea Handler (right). 

Big Growth in 2015

Two online giants planned for expansion in 2015, but their efforts seem destined for different outcomes. First, Facebook put video growth on the fast track last year, launching an embeddable video player and rolling out live streaming (first to celebrities, then to iOS devices). In July, the social network also began offering video ad revenue sharing to premium partners. All of its efforts show that Facebook is determined to match YouTube and grab a share of the growing video ad market. Facebook is already an essential tool for video marketers; because Facebook videos appear in members’ timelines and are highly sharable, they’re more effective than YouTube ads for creating quick buzz.

YouTube also made a play for more revenue in 2015, but it did so by launching a subscription service in October called YouTube Red. The $10 per month service offers original content from PewDiePie and other YouTube superstars, as well as offline viewing and access to a music service. Industry chatter around Red wasn’t positive, with many scoffing at YouTube’s plan to get a monthly fee from users who are too young to have a credit card. YouTube also earned itself ill will by strong-arming some premium partners into providing exclusive content for the service. In 2016, we’ll see if Red will be a success or turn out the way YouTube’s $100 million original channel initiative did in 2012.

YouTube launched the subscription service YouTube Red in October, a move some industry insiders wrote off before it even launched, given how many YouTube viewers are too young to even have a credit card. 

Large companies jumped into OTT in 2015, with Comcast launching Stream and Watchable, Verizon launching Go90, and NBC offering SeeSo. Some services are free, some come with a small monthly fee, and all seem designed to attract young cord-cutters and cord-nevers. SeeSo, which costs $4 per month, seems to have the best chance of succeeding, as it packages the best of NBC’s broadcast comedy, all of Monty Python’s Flying Circus, and well-pedigreed originals. Others, such as Go90, take another route and curate the best of online video. It and similar services will have a harder time finding an audience since they rely on curation for their appeal.

But what of TV Everywhere, pay TV’s now-6-year-old plan to retain subscribers by offering streaming access to shows and movies? TVE’s numbers have never been strong, and its proponents have usually relied on year-over-year growth stats to demonstrate that it’s working, rather than giving the number of active users. Since it requires authentication for viewing, something many find confusing, and its content libraries are spotty, it hasn’t enjoyed the same demand as the SVOD services. In 2015, people finally started admitting that it wasn’t working. In a Digital Video Benchmark report late in the year, Adobe showed that TVE viewing has stalled. It has few active users, with less than one in seven pay TV households actively using TVE sites or apps. Soon after, a report from research company GfK showed that TVE awareness hasn’t risen in 3 years. Despite that, 2016 could be a big year for TVE, as we’ll explore in the next section.

4K continued to make headlines in 2015, but the story was more of manufacturer supply rather than viewer demand. TV makers continue to add 4K models to their lineups and while sales are increasing, it doesn’t feel like viewers are clamoring for better resolution. The difference between HD and 4K viewing simply isn’t the same kind of jump as from SD to HD, and many consumers seem content to hold onto their HD sets while the market matures. There still isn’t much to watch in 4K, and what little there is comes from streaming sources. That means households need a 15Mbps broadband connection to download it. However, there are industry efforts to make the UHD rollout about more than just pixels. At CES 2016, an industry body called the UHD Alliance unveiled the logo and specifications for its Ultra HD Premium designation, designed to show consumers which content and devices provide a richer set of colors using HDR (high dynamic range) and other specifications. Dolby’s Dolby Vision certification offers a similar guarantee. Sony created its own designation, called 4K HDR Ultra HD, for use with its own sets. It’s hard to say if all this attention to expanded brightness and color ranges will entice buyers or confuse them even more.

With the table now set, let’s turn to some industry experts to learn what the online video space will experience in 2016.

Looking Ahead

What path will streaming entertainment follow in 2016? Those who love to hate their cable company (and that’s a lot of people) saw 2015 as a watershed year: Consumers finally got access to small subscription bundles—the so-called skinny bundles—they’ve been waiting for. The cable and satellite companies would soon start falling apart, right?

Not really. In 2016, we’ll learn that most people aren’t that keen to ditch their cable and satellite accounts. Sure, it’s a big monthly bill, but people like having those hundreds of channels just a tap away on their big-screen TVs. Young adults aren’t as big on cable and satellite, and will never sign up for subscriptions at the rate their parents do, but the big entertainment companies are proving adept at creating low-cost and no-cost targeted bundles to keep young adults watching. Plus, streaming bundles aren’t always the financial savings people thought they would be.

“The problem with cord cutting is it’s not that cost-effective unless you’re somebody who really doesn’t watch a whole lot of TV,” says Alan Wolk, senior analyst at TDG. “If you’re content to just watch Netflix and one or two other services, then yeah, it’s a great deal, but most people don’t fall in that category and suddenly you start adding up Netflix plus HBO Now plus Sling. Suddenly you’re cost is not considerably less than it would have been with the MVPD and you’ve got a horrible user experience because you’re navigating from input to input and app to app. You have no program guide. You have no DVR. You’ve got to think to yourself, ‘Gosh for $10 more I can get all this, plus probably another 100 channels. What am I doing? Who am I really sticking it to, myself or Comcast?’”

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