The Future of Online Video: An Economic and Policy Perspective
26 Pages Posted: 1 Apr 2014 Last revised: 30 Jun 2015
Date Written: September 10, 2014
Online video streaming now accounts for a high proportion of Internet traffic, signaling the significance of online video entertainment to the future of the Internet. Especially in an environment where leading ISPs and MVPDs have substantial national market shares as well as ownership of content supply, the online video market highlights the importance of FCC policies that promote competition and robust entry opportunities.
In the first part of the proposed paper, we document with the most recent available data the central features of the online video industry, including: revenue and market structure of its five major segments (subscription, a la carte sales and rentals, advertiser-supported professional content, user generated content, and MVPD-authenticated online-offline packages); prevailing programming windows; and content aggregation patterns through both portals (Hulu, Netflix) and devices as content platforms (Apple TV, Roku).
In the second part of the paper, we explore three related economic factors that will determine the future of the online video industry:
1. The development potential of large scale online aggregation of over-the-top suppliers and competition from MVPDs (including IP-based delivery):
Can the limited development to date of over-the top delivery of individual cable networks without MVPD subscription authentication be attributed to straightforward economic incentives? What competitive advantages may potential collaborations between MVPDs and other firms (e.g., Comcast and Apple) have?
2. The willingness of program suppliers to grant online distribution rights (in effect, the development of programming windows and programming exclusivity):
What conditions are required for online windows to be simultaneous with, or before, offline delivery? What parallels can be drawn with development of other media, such as monthly subscription cable networks? How do windows depend on development of effective advertising and other revenue models?
3. ISP pricing models and their relationship with online video pricing:
How does bandwidth-sensitive ISP pricing influence the effective price to online video consumers? Considering recent network neutrality changes, is it likely that online video prices will reflect the true cost of delivery in the long run across a range of near-future policy outcomes? How might pricing models develop? What parallels can be drawn with relationships between the multi-sided relationships of MVPDs and cable and broadcast networks.
In the concluding section, we will consider the potential role of FCC regulatory authority (with or without network neutrality rules) on the behavior of established ISPs and MVPDs, and on the pricing, quality and variety of online video entertainment. Our answers to the above questions will necessarily be limited and in some cases speculative, but will be informed by economic theory. Although we may stop short of specific policy prescription, we believe that a sound economic understanding of industry incentives, strategies, and relationships, and their market outcomes, is the best path to effective policy.
Keywords: Online Video, MVPD, Windows, content aggregation, Over the top, Internet, competition, regulation
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