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Online-video sites - Net flicks

2013-02-06 11:19:58

Original programming hits the web

Feb 2nd 2013 | LOS ANGELES |From the print edition

POWER is a lot like real estate. It s all about location, location, location.

So muses Frank Underwood, a scheming congressman played by the actor Kevin

Spacey (pictured), in the pilot of House of Cards , a new American series.

Netflix, an online-video and DVD rental firm, shares that perspective. House

of Cards , an adaptation of a BBC mini-series, has big-name actors and a big

budget (the first 26 episodes are thought to have cost more than $100m). But

when the show premieres on February 1st, it will do so exclusively on Netflix,

not cable or broadcast television.

Creating original, high-end television shows for subscribers is a new tack for

a firm, the main business of which is renting out and streaming other companies

content online. Others are following suit. Amazon, an online shopping mall

that also offers a video-streaming service, has commissioned six television

pilots, and has plans to develop films. Hulu, an online-video site, is also

making original programmes, such as Battleground . YouTube, Google s

online-video site, which is better known for amateur videos of babies and

blunders, has launched channels that are run by media companies and

celebrities. They offer more professional content, although they have had mixed

success so far.

Tune in to the early stages of television s third wave . Online video used to

be amateur and short-form. But it is starting to follow the path of broadcast

television, and then cable, by offering high-quality content. People are

watching more video online, and will be consuming even more of it as quality

improves. During the third quarter of last year, Americans on average clocked

up seven hours of online video a month, 37% more than they had watched a year

before, according to Nielsen although this is still much less than the 148

hours a month (yes, really) that they spent in front of their television sets.

Not unlike the characters in a daytime soap opera, every player jumping into

original content has their own agenda. For streaming services costs to acquire

content are high. In 2011-12 Netflix spent $4.8 billion on streaming content,

according to Wade Holden of SNL Kagan, a research firm. Ploughing some of that

cash into developing their own programmes helps protect the firms against

content costs rising further. And with more competition for customers,

streaming services need to differentiate their offerings. Their goal is to

become more like HBO, a highly profitable premium television channel that hosts

original series, along with reruns of movies. Netflix s share price has been

pushed down over the past year (although it climbed in January), in large part

because of its high licensing costs and its struggle to keep customers

watching.

For sites that rely on advertising, like YouTube and Yahoo!, their main aim is

to boost revenue. Big advertisers have been reluctant to place ads alongside

online videos that could be political, provocative or poor. The hygiene factor

of premium video content will help convince broadcast advertisers that the

internet is a viable medium for them, says Paul Zwillenberg of Boston

Consulting Group. YouTube may also start offering subscriptions to some of its

more popular channels. Machinima, which boasts more than 1.5m gaming-related

videos, for instance, is extremely popular among the younger set, and might

have a fan base and be sufficiently distinctive to get people to pay up.

People watch shows differently online than on television, which allows them to

consume one episode at a time. Netflix has noticed that people like to binge ,

so all the episodes of House of Cards will be released at the same time as

the pilot. The firm will need more such innovations as well as original,

television-quality content. Television will eventually adapt to become more

like Netflix, predicts Ted Sarandos, the service s chief content officer.

Right now our major differentiation is that consumers can watch what they want,

when they want it, he says. But that will be the norm with television over

time. We re getting a head start.