It’s no secret that video-on-demand services have been booming for some time now. Netflix still rules the video-streaming roost, closing out 2013 with more than 44.3 million streaming subscribers worldwide.
But hot on its heels are Hulu Plus and Amazon Prime, not to mention the constant rollout of new streaming services including Redbox Instant, Crackle, and M-Go.
In such a competitive marketplace, VOD services must be able to pinpoint what differentiates their product from others. Aside from pricing and accessibility, analysts agree that locking in exclusive, in-demand content rights is vital to making a VOD service standout to consumers.
In 2016, Netflix will gain exclusive US streaming rights to Disney movies in a release schedule typically reserved for premium cable channels such as Starz.
The company also has exclusive deals with DreamWorks Animation SKG, and has been looking increasingly toward exclusive documentary content as a way to boost original programming. Hulu recently signed a deal with CBS to bring 2,600 new episodes to its paid-for Hulu Plus streaming service, and Amazon and CBS extended their current content licensing agreement in January.
But not all TV studios are onboard with granting exclusive deals to VOD services, according to James Dix, senior analyst for media research at financial services and investment firm Wedbush Securities. He explains that the current trend can actually work against them.
"In theory, TV networks can sell the same content to a multitude of different people, and get a larger overall aggregate fee per episode from that," says Dix. "But it does seem like studios are willing to be more creative in terms of the types of deals they are offering – they do seem willing to consider that exclusivity."
Differentiation isn’t just as simple as getting exclusive content. Netflix, for example, has about $7.3 billion in programming obligations to worry about in the next five years. It’s an expensive business and, before paying up, VOD services must have a good handle on target audiences to better attract and retain certain demographics.
"These services must have different, intelligent strategies for what kinds of exclusive content will bring the people in the door who are most valuable to them," says Dix.
Last year, Amazon Prime asked consumers what they wanted when the company rolled out a campaign allowing viewers from the US, UK, and Germany to watch, rate, and critique 14 pilot episodes of potential original programs for its VOD network. This February, Amazon announced it would be releasing a second wave of pilots for potential new shows for viewers to judge.
Analysts: VOD without ads not sustainable
Currently, the majority of VOD services, barring Hulu Plus, are not supported by advertisers.
But within the next three years, most on-demand networks will include advertising, according to Laura Martin, senior media analyst at Needham & Co.
"It is not sustainable for on-demand platforms to continue as they are without advertising," says Martin. "Their growth has to slow and they will eventually need to have two revenue streams."
But if a company changes its brand promise from no ads to some ads, it must keep customers and investors in mind.
"They might start ads on a limited basis, and get data on how the change is affecting the churn and satisfaction of their core customers," says James Dix, senior analyst for media research at financial services and investment firm Wedbush Securities. "Companies must also prove to investors that the changes are incremental, no core subscribers are being lost, and the happiness of advertisers to continue the relationship."
Further, when VOD services’ growth "inevitably" slows, according to Martin, they will need to expand globally to communicate to groups such as investors.
"In the film business, international represents two-thirds of box office revenue," she adds. "So the TV businesses over the Internet must expand offshore to give investors the same hope for the same upside, doubling their US revenue from offshore markets.
Attracting new consumers
In December, market research company the NPD Group reported that the share of total TV streams demonstrated the popularity of shows produced solely for subscription VOD, such as Arrested Development, House of Cards, and Hemlock Grove. During the six weeks following the release of season four of Arrested Development on Netflix, for example, 11% of its subscribers per week streamed at least one episode, translating into more than 3 million viewers. Other original series also fared well after their initial VOD releases – with 5% streaming House of Cards and 4% streaming Hemlock Grove.
Original programming is Crackle’s main focus, according to the company’s director of media relations Naomi Bulochnikov. Programs shown on the Sony Entertainment-owned service, which has been around since 2007, include Cleaners, which is coming back with 12 episodes later this year; Chosen, also coming back in 2014 with six new episodes; Comedians in Cars with Coffee, which has been picked up for a fourth season; an original feature film titled Extraction; as well as a music series called Playing it Forward about surprise street performance pop-up concerts.
Promoting your brand
To grab the public’s attention, Sony Entertainment paid for a shortened episode of Crackle’s original series Comedians in Cars Getting Coffee, which featured a reunion of Seinfeld cast members, to air during the Super Bowl’s half time. The full-length episode appeared on Crackle immediately after, and a press release was put out, associating the VOD service with the show. The spot, along with communications outreach, garnered 300 million media impressions.
"It was an honor to see our brand at the forefront of one of the biggest events of the year," says Eric Berger, EVP of digital networks for Sony Pictures Television and GM of Crackle. "We knew it would be a historic moment for us and did everything we could to engage consumers and ultimately broaden our audience – the end result was incredibly rewarding."
The public was aware of Crackle and the show, as evidenced by its 43 million viewers across 22 countries. But for those who weren’t, it was a chance to let them know where the program lived, adds Bulochnikov.
Meanwhile, newbie M-Go, a pay-as-you-go digital movie and TV streaming service joint venture between Technicolor and DreamWorks Animation, has differentiated and promoted its product by focusing on the image quality of its content.
M-Go, which launched in January 2013, announced at the Consumer Electronics Show that it has developed a comprehensive 4K streaming service to launch on Samsung ultra high-definition TVs in spring 2014.
Within the demo, M-Go was able to unveil its Premium Movies & TV branding.
"Our CES media plan helped propel M-Go into the forefront of the 4K/UHD discussion," explains Stacy Katz, VP of strategic communications for M-Go. "The partnerships with Samsung and Technicolor along with providing our media relationships with meaningful story angles helped elevate M-Go above the noise.