The State of Media and Entertainment 2013

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Netflix started the year in a weak position, fresh off some self-inflicted mistakes in the fall of 2011. While its subscriber numbers were healthy, those in the industry were looking to see if Netflix could gain major label first-run movies for its customers. If not, the subscription video-on-demand leader might fade away like the Blockbuster chain.

In February, Netflix signed a multiyear agreement with The Weinstein Co., gaining access to respected films such as The Artist and the Oscar-nominated documentary Undefeated.

"We couldn't be happier to be working again with Harvey and Bob, who have an unmatched track record of creating critically acclaimed and commercially successful movies," said Netflix's chief content officer Ted Sarandos.

Xbox Live Gold members who were also Comcast Xfinity subscribers gained streaming access to HBO and MLB.TV in March. YouTube signed a license agreement with Paramount Pictures for nearly 500 titles in April. Titles included some new films, such as Hugo, available for 48-hour rentals.

The cable and online worlds collided in May, when Discovery Communications, Inc. purchased online video network Revision3. While the deal was the first of its kind, it seemed natural since the two companies share an audience interested in science and technology.

"Discovery's mission to ignite viewers' curiosity and its history of pioneering new platforms -- from cable to HD to 3D -- make it the logical leader in this explosive new wave of digital video growth," said JB Perrette, chief digital officer for Discovery Communications.

Revision 3 Screen

Cable and online video collided in May, when Discovery Communications purchased Revision3. 

The biggest surprise of the year, however, came at the end. In December, Netflix announced that it had signed a deal with Disney for first-run and older movies. Classic Disney films became available to subscribers immediately, direct-to-DVD releases began in 2013, and new theatrical releases will begin appearing in 2016.

But the deal isn't limited to Disney studio content. Because Disney owns Pixar and Marvel, Netflix gained access to their titles, as well as upcoming movies from Lucasfilm Ltd., which Disney was in the process of acquiring at the time the deal was announced.

"Over the year we've continued to build the Netflix catalog. The most recent deal was Disney, which was a landmark deal for us," said Joris Evers, Netflix's director of global corporate communications. "It was the first time that Netflix has signed one of the six major studios, and it's something that validates OTT as an alternative to premium cable channels."

While much of the attention in the subscription video-on-demand space is on gaining premium movies, Evers said that television episodes get more play.

"On Netflix, people watch more TV shows than they do movies," Evers said. About two-thirds of viewing time is TV shows; only one-third is movies.

Since TV shows get more airtime, Netflix's plans for 2013 make perfect sense. The service has already experimented with running original series with "Lilyhammer," but that show was produced and largely finished before Netflix got to it. In 2013, Netflix will show programs that it shepherded from the beginning.

"2013 is really the year of the Netflix originals," Evers declared. "We had Lilyhammer on Netflix in 2012 and it was a great start for us. We'll have House of Cards in February, then three others following that: Arrested Development, Orange Is the New Black, and Hemlock Grove."

As with Lilyhammer, Netflix will make all the episodes of a program available for viewing from the start. That's helping popularize a new expression for our times: binge viewing.

Broadcast Met IP

One theme of 2012 became obvious at the National Association of Broadcasters conference in Las Vegas in April. Suddenly the show floor felt flooded with new big project solutions for letting broadcasters unify their broadcast and IP workflows, or stream broadcast content online. It was as if the big networks and studios all at once decided that there's real money in this internet video thing.

A few months before, at the Mobile World Congress in Barcelona, Spain, Adobe unveiled its own entry in the field: Project Primetime. Adobe used technology it gained from acquiring Auditude to create a platform that at first offered ad insertion, content protection, and analytics. Adobe built that up in a series of announcements through the year: Primetime gained seamless ad integration at The Cable Show in May, it was used to create highlight clips for the BBC during the Olympics, and the whole platform entered beta in November.

"The big change that we see is that online video isn't an experiment and it isn't marketing anymore," said Ashley Still, director of product management for video solutions at Adobe. "It really is a part of [the broadcaster's] business. The shift really started in 2012 and will accelerate in 2013. TV channels are coming online and there will be more TV channels online in 2013."

Adobe hopes broadcasters see the value of the complete solution it's creating.

"One of the things that's very true is when you're talking about TV there's a level of quality and an expectation of being able to monetize that content," said Still. "It's very hard to get consistent quality and monetization when you have a bunch of point solutions that don't work together very well. There's more focus on integration because the experience has to feel like television. If it's not an experiment anymore, the bar increases on being able to make money through ads or subscriptions."

Look for 2013 to be full of big content deals with big checks behind them. The race now is to provide premium entertainment and to make the whole experience feel as easy as television. But keep your eyes out for the interesting smaller players; they're the ones that could change the whole direction overnight.

This article appears in the forthcoming 2013 Streaming Media Industry Sourcebook.

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