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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.