Internet streaming of TV shows shakes cable TV, satellite industries

It???s a fascinating story of market forces leading to unpredictable success: Netflix, a popular entertainment service, built a business on offering a low-cost monthly package in which DVDs of rented movies would be shipped to customers??? homes.

As the reach of broadband Internet service expanded, Netflix also began offering the option to watch movies instantly across the Internet. Applications were developed for popular video-game consoles, so these ???streaming??? movies could be watched on the family television set, rather than a little computer monitor. Eventually, televisions and DVD players with the built-in ability to access Netflix, Amazon, Hulu, and other streaming services were introduced.

Popularity soared

The popularity of these streaming services grew with remarkable speed. All of them noticed something curious about the preferences of their customers: TV series were becoming extremely popular choices for streaming video entertainment, rather than theatrical films.

This led to a new phenomenon, ???binge viewing,??? in which entire seasons of a TV show were devoured in marathon sessions. Binge viewing was a rather expensive habit when the TV shows had to be purchased on DVD, with box sets of full seasons costing $50 or more. It was inconvenient when the three or more discs containing a single season had to be rented individually in video stores, or mailed one at a time by DVD rental operations. But when the shows are instantly available as part of a vast library of programming, available for a very modest monthly fee, binge viewing became much more practical.

Netflix, which carefully analyzes the viewing preferences of its customers, noted that some TV series inspire the majority of viewers to plow through entire seasons, once a single episode has been viewed.

Some of these are imported shows from Britain and Australia that might not be easy for American viewers to find on cable TV. Others are classic programs from years gone by that would not appear on any current broadcast schedule.

Viewing habits for broadcast and cable television programming are changing, as viewers who might have been hesitant to dive into the fourth or fifth season of a densely plotted show discover they can use streaming video services to catch up on previous seasons. Such content can be conveniently viewed on a variety of portable devices, right down to smart phones. And when a TV series is watched online, there aren???t any commercial breaks.

This is all delightful news for companies like Netflix and Amazon. The delivery of streaming content has very little cost, compared to mailing out DVDs. Customers who incorporate the accessibility and variety of streaming video into their viewing habits become reliable sources of income.

But these are somewhat less welcome developments for cable and satellite TV companies, which suddenly find themselves with new competition they never saw coming.

Streaming video costs a fraction of the price of monthly cable or satellite subscriptions, and the programs are available for viewing and re-viewing at will. The variety of programming available from services like Netflix and Amazon is stunning. And the wait time for new TV programming to reach streaming viewers has decreased dramatically. It???s becoming fairly common for the prior season of a show to appear on streaming video just as the next season launches on broadcast or cable TV.

Things have already gotten a bit rough between networks and TV service providers over the competition from streaming video. In June, Dish Network dropped AMC, which produces some extremely popular programs, including ???The Walking Dead??? and ???Breaking Bad.??? Part of this dispute was related to AMC???s deal to distribute its programming to Netflix. recently signed a deal with Warner Brothers to add its television programs to the Amazon streaming library, which will also make them readily available to users of the popular Kindle Fire tablet device. Similar arrangements were already in place with MGM, CBS, and NBC Universal.

Legislative implications

The rise of streaming video has a number of legislative implications, not least for the ???Net Neutrality??? movement. Net Neutrality amounts to a series of price controls on Internet bandwidth, forcing providers to treat all web traffic equally. That could spell the end of the streaming video marketplace, because it relies upon the purchase of very fast Internet access by video providers. Also, the techniques used by Internet service providers to balance bandwidth demands from residential users would be ruled out by Net Neutrality, resulting in a generally slower Internet experience that would make video streams less enjoyable???or dramatically increase the cost of an Internet connection fast enough to enjoy them.

Cable and satellite TV providers offer their own streaming video libraries, and since they also provide Internet access, they???ve been accused of ???rigging the system??? so their video transmissions don???t count against the download limits on low-cost Internet accounts. Legislative remedies to prevent such anti-competitive preferential treatment for favored content have been considered, with the House Communications and Technology Subcommittee holding extensive hearings on the topic in late June.

The online world changes so fast that regulators have a hard time keeping up. The next steps, either in what remains of this year or 2013, will involve nailing down the regulatory authority to resolve disputes between online video concerns and the Internet providers who convey their traffic to end users. There have already been challenges to the FCC???s authority to regulate such matters.

Copyright law for online content remains a topic of contention, following the defeat of the Stop Online Piracy Act (SOPA.) The issues that prompted SOPA have not gone away, so a new attempt to address them in Congress is all but inevitable. Also, if pending efforts to de-regulate cable and satellite TV are successful, the playing field between content providers and delivery services will be greatly altered. The dispute between AMC and Dish Network shows how online video is already a source of conflict.

The rising popularity of online video puts growing sums of money at stake in these decisions.

Netflix is said to be pumping out one billion hours of online video per month, and they now have more subscribers than the largest cable TV company.

Netflix stock suffered after it was forced to significantly raise the price of DVD rentals last year, but the growth of its streaming video service has fueled a corporate recovery. Large investments in its online infrastructure were made accordingly.

Cable and satellite providers are worried about online video cutting into their advertising revenue. TV content providers are evaluating just how much they should be charging to license content to online providers. Those are some very large forces headed for a collision of interests, and they???ve all got lobbyists in Washington.