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Streaming—A Disruptive Technology

Streaming media, also called Over-the-Top (OTT), refers to television, movies, and music streamed directly to people’s homes and apartments from the Internet. OTT streaming has had and is continuing to have a direct impact on decreased cable TV and broadcast TV revenues and is a leading cause in the decline of movie theater attendance as more people abandon cable TV and move to Netflix, Amazon, and YouTube TV for movies and TV shows.

Growth in Streaming

Streaming entertainment from the Web to televisions is a key application that is growing year after year and causing losses for pay-TV (cable TV, telephone companies, and satellite TV) providers. However, not all subscribers that stream have “cut the cord” on all pay-TV. According to an October 27, 2017, article by Wayne Friedman in TELEVISIONNewsDaily, “53% of U.S broadband homes subscribe to pay TV as well as to OTT streaming.” But streaming hours grew 100 percent from 2016 to 2017, according to the article, “Streaming Hours Up Over 100% in 2017, Study Says,” by Alex Weprin. The article cited Conviva for the statistics and for the statement that live sports were an important driver of the increase.

However, in increasing numbers, subscribers are canceling their pay-TV service. According to a September 13, 2017, Variety article by Todd Spangler, “Cord-Cutting Explodes: 22 Million U.S. Adults Will Have Canceled Cable, Satellite TV by End of 2017,” the 22 million people that have canceled their pay service is a cumulative total of subscribers that rely entirely on streaming options. These statistics were credited to eMarketer. Added to these losses is the fact that growing numbers of children and young adults are growing up assuming that they can access all their television shows and movies on their mobile devices and computers via streaming. To wit, a September 15, 2017, USA Today article cited statistics from Videology that 9 percent of Millennials plan to cancel their cable TV subscriptions in 2017. This does not include the young adults, college students, and children who already rely entirely on streaming.

Additional studies have tracked the rise of streaming and the decline in pay-TV usage:

  • A 2017 survey conducted by Hub Entertainment Research found that 52 percent of respondents watched their favorite shows online rather than through their cable TV set-top box. This causes lower revenue for cable TV as subscribers sign up for lower cost, less inclusive pay-TV packages. This statistic was published in DigitalNews in an article published on November 9, 2017, by Alex Weprin, “Study OTT Overtakes Set-Top Box as Source for Favorite Shows.”

  • A survey done by Videology found that only one third of Millennial males intend to subscribe to pay-TV in 2017. Adam Levy cited these statistics in a September 15, 2017, article in USA Today titled, “Cost Is Not Why More Millennials Than Ever Are Cutting the Cord.”

Easier Set-Up and Increased Internet Uptake

When over-the-top streaming was first available in 2007, accessing it from traditional televisions was complicated because at that time most televisions did not have the HDMI (High Definition Multimedia Interface) ports needed for set-top boxes such as Apple TVs and Roku. With the universal availability of HDMI ports on new televisions, this requirement is no longer a major impediment to the adoption of streaming. In addition, increased capacity in broadband networks and growth in broadband adoption are factors in the growth of streaming. According to Netflix, Inc. CFO David B. Wells on their October 16, 2017, third-quarter earnings call:

  • I think, in general, it is the continued adoption of Internet entertainment that is driving our growth.

Accessing Streaming—Connected TVs, Game Consoles, and Mobile Devices

Subscribers access streaming media on mobile devices as well as on flat-panel televisions. Streaming movies and TV shows to tablet computers and smartphones is particularly useful when traveling. In addition, university students who may not have television in their dorms often stream to laptop computers, smartphones, and tablet computers. An additional option for connecting to streaming service is via game consoles connected to televisions. Subscribers to streaming can easily log into their streaming service from game consoles such as the Sony Wii and the PlayStation Vue. Two examples of services compatible with game consoles are Netflix and Hulu movies and TV shows, which have been made compatible with game consoles so that they can be streamed directly to them.

Another way streaming is becoming more widely available is via Internet-connected televisions, also referred to as smart TVs. Internet-connected televisions have menu-driven screens for surfing the Internet and selecting programming. New smart TVs also have Roku software integrated. This eliminates the requirement for an HDMI cable and a physical set-top box because Roku features are built into the TV. Consumers can use the televisions’ remote controls to click on icons from sites such as Netflix, Amazon, and Hulu to stream movies and television shows to their TV. These televisions connect to the Internet via home wireless networks or by connecting Ethernet cabling to the Ethernet port on their television. The cable is then plugged into to their Wi-Fi router and their cable TV or broadband modem.

Set-Top Boxes for OTT Streams

Apple TV, Roku, Google Chrome, and Amazon Fire are examples of set-top boxes made expressly for over-the-top streaming. Each of these devices has software with options for accessing content from a specific list of providers. The set-top boxes plug into the HDMI (High Definition Multimedia Interface) port on flat screen televisions. Streaming content is sent to subscribers’ set-top boxes via their Wi-Fi networks.

Keeping and Attracting Subscribers—The Criticality of Content

Quality content that appeals to a wide range of people is an important strategy in attracting and keeping subscribers. The number of over-the-top providers in the United States competing for subscribers is on the rise. Whereas in the early days of streaming, Netflix was able to license content from studios including Disney and Universal, as these contracts expired, many studios stopped licensing content to Netflix and others in favor of streaming their own offerings.

Both Amazon and Netflix are building up their collections of original content as well as attempting to license rights to content from other studios. Netflix announced plans at their October 2017 third quarter investor conference to spend up to $8 billion in 2017 for original content. This is riskier than purchasing existing known hits, but with less licensed content available, it is a necessary strategy.

Disney, with whom Netflix previously had a contract, opted to not renew its licensing agreement with Netflix in 2017. Disney has instead started its own streaming service with content from its movies, TV shows, and its ESPN sports division. In 2017, Disney purchased the studio library of 21st Century Fox. The content that Disney gained includes Fox’s movies (Star Wars, Avatar, and X-Men), television (The Simpsons, This is Us and Modern Family). Importantly, the Fox acquisition strengthens Disney’s international presence in India and other non-European countries. In a similar strategy, Comcast purchased Universal Studios in 2011 for their NBC television and Universal Studios’ libraries of movies. They recognized the importance of content to round out their offerings of cable TV service.

The issue of content is also complicated by the fact that some cable TV providers also own rights to movies and TV series and/or national broadcasters. In January 2011, Comcast received approval from United States regulators to purchase a controlling stake (51 percent) in NBC Universal, which owns Universal Media Studios and Universal Pictures’ Focus Features; the NBC broadcast network; and cable networks USA, Bravo, and CNBC. It is part owner of the Weather Channel and majority owner of MSNBC.

Major content providers and a partial list of what they own include the following.

  • Time Warner owned the most content in the United States and Canada. Some of its properties were HBO Films, CNN, New Line Cinema, 10 percent of Hulu, TBS, Turner Entertainment, and Warner Bros. Animation. It owns CW Television Network jointly with CBS Corporation. AT&T purchased Time Warner in 2018.

  • Comcast with its NBCUniversal division owns NBC, MSNBC, NBCSN, E! CNBC, Telemundo, Bravo, USA Network, DreamWorks Animation, The Weather Channel, 30 percent of Hulu, and Universal Studios along with their parks and resorts. It is the largest broadcasting and cable television conglomerate by revenue in the world. In 2018 it purchased Sky, a pay-TV service available throughout Europe.

  • See below for Walt Disney Company’s purchase of 21st Century Fox’s library of films and television content.

  • Viacom is an international cable TV and content company. It owns Comedy Central, MTV, Spike, Nickelodeon, VIVA, Paramount Pictures, BET, and VH1, as well as others. Privately owned National Amusements, Inc. owns a majority of Class A common stock in Viacom. National Amusements is controlled by the Sumner Redstone family, which also owns movie theater companies.

  • CBS mainly produces commercial television and radio shows. It owns CW Television Network jointly with Warner Brothers, CBS films, Smithsonian Network, UPN, Infinity Broadcasting, Viacom Outdoor, Showtime Networks, Simon and Schuster Publishing, and Paramount’s television studio. National Amusements is a parent company of CBS as well as Viacom.

  • Sony Pictures Entertainment is a wholly owned subsidiary of Tokyo based Sony Corporation through its Sony Pictures Entertainment Division. It owns Columbia Pictures, TriStar Pictures, Sony Classic Pictures, Dutch production company 2waytraffic N.V., and Sony Pictures Animation. Sony also manufactures Bravia TVs, Blu-ray players, and the PlayStation game console. It is offers its content through its Internet-connected televisions, Blu-ray players, and home entertainment systems.

  • The Walt Disney Company owns the ABC broadcast network, ESPN, The Disney Channel, A&E Network, Touchstone Pictures, Lucasfilm, Maker Studios, Marvel Entertainment, and Pixar. It is part owner of Lifetime Entertainment, the History Channel, A&E Networks, and Freeform, 60 percent of Hulu, and 14 theme parks worldwide. In 2018 Disney purchased 21st Century Fox which included part ownership of National Geographic Partners. Blue Sky which produces and distributes motion pictures worldwide, its film libraries, and Fox Home Entertainment. The purchase did not include Fox’s TV or sports stations. The Walt Disney Company is the second biggest conglomerate by revenue in the world.

A Snapshot of Companies that Offer Streaming

Although, it has the largest customer base of streaming customers worldwide, Netflix does have competition. According to market research group Parks Associates, there are over 200 streaming services in the United States alone. This statistic was published in the December 19, 2017, Wall Street Journal article by Sarah Rabil, “Streaming’s Goldrush Upends TV.” According to audience measurement firm CommScore as published in the April 10, 2017, TechCrunch.com article by Sarah Perez, “Netflix Reaches 75% of Streaming Users, but YouTube is Catching Up,” Netflix currently has 75 percent of customers that stream in the United States. The article further stated that of the Wi-Fi–equipped homes in the United States, 53 percent of them use streaming services. As more homes are equipped with Wi-Fi, the number of people streaming content will continue to grow.

And competitive streaming providers are gaining market share:

  • Amazon offers free streaming for its Prime customers. Prime customers pay $100 annually for no-fee fast deliveries, plus other privileges including free downloads to Amazon’s Kindle e-reader.

  • Facebook Watch offers sports videos, short form videos of 5 to 10 minutes in length, and its own original content of 20- to 30-minute videos.

  • Hulu offerings include content from broadcasters and access to live sporting and other events.

  • HBO Now is free to people that subscribe to their pay HBO pay-TV offerings.

  • Sling TV includes content from live broadcasts plus many pay-TV channels, and streaming sporting events.

  • The Walt Disney Company has announced its intent to offer streaming channels with its own content including ESPN and 20th Century Fox’s original content, which it is purchasing from 21st Century Fox.

  • Google’s YouTube TV includes broadcast stations and pay-TV channels such as ESPN and the Disney Channel.

Ad Revenue on Streaming Services

OTT streaming is available with subscription fees without commercials, or free but with commercials. Social network giant Facebook has announced its intention to offer longer form streaming video supported by advertising. Hulu, majority-owned by the Walt Disney Company and Comcast with minority ownership by AT&T, offers options for low-cost subscriptions that include ads or higher-cost subscriptions with limited, brief ads. Hulu has access to premium and broadcast TV content through its broadcast and studio owners’ libraries of content.

Streaming Worldwide

Streaming services are available in most regions worldwide, including Europe, India, China, North and South America, and parts of Africa. Netflix alone offers service in 190 countries worldwide. In developing countries such as India and where its available in Africa, coding techniques used in streaming media enable users with slow-speed mobile and wired broadband connections to receive television shows and movies of adequate resolution. Coding techniques that use compression to shrink the number of bits enable many subscribers that would otherwise not have access to receive an acceptable quality of streaming. According to Netflix Chief Product Officer, Gregory K. Peters:

  • Encodes we’re using are super-efficient so that we can provide a really, really, high-quality video experience, and with lesser and less bits.

Netflix is a global entity with over-the-top streaming available worldwide. Its online streaming service is compatible with more than 100 formats on devices such as the Apple iPad and iPod, mobile handheld devices, Roku devices, and game consoles such as the Microsoft Xbox, Nintendo Wii, and Sony PlayStation.

Ease of Use and Technological Enablers

It is no longer necessary to connect laptops to high-definition televisions to stream movies from the Internet to the TV. Dedicated set-top devices such as the Roku and Apple TV are easily linked to flat-panel televisions via the High-Definition Multimedia Interface (HDMI) video interface and audio cable.

Significant technological improvements have occurred that enable multimedia streaming on the Internet in homes and consumer equipment that simplifies streaming to mobile devices and TVs. These innovations include the following:

  • Dedicated electronic devices, such as set-top boxes from Apple TV and Roku that connect directly to televisions for streaming TV shows and movies from the Internet.

  • Adaptive bit rate streaming software on content providers’ and cloud servers that dynamically alter the speed of video streams to match consumer devices and bandwidth. This provides a more consistent video stream with fewer disruptions.

  • Improvements with respect to in-home wireless Wi-Fi networks.

  • The availability of Internet-connected televisions with icons on the start-up screen for Netflix, YouTube, Hulu, Amazon, Roku, and others that negate the requirement for a set-top box dedicated to streaming.

  • The attractiveness, sound quality, and lower prices in home entertainment sound systems with the capability for high-definition images on large flat-screen televisions that make home viewing attractive.

  • Over-the-top streaming directly to portable, wireless devices including tablet computers and smartphones with enhanced resolution.

Cable providers and telephone companies that own local broadband facilities now compete with companies such as Netflix with its 100 million subscribers worldwide and Amazon Prime. Netflix and its competitors have an advantage in not needing to build broadband infrastructure to support their services. This eliminates the significant capital investment required to build a network, and lowers the barriers to entry into the market. Competitors such as these are referred to as over-the-top (OTT) providers. See Figure 6-1 for a diagram of OTT streaming. It is one impetus for people to opt for high-speed Internet access. In a quote from Netflix CFO David B. Wells at the Netflix 2017 third-quarter investor’s conference, he says:

  • When we try to explain the quarter-to-quarter perturbations or some of the lumpiness in our net additions, we tend to use explanations that sort of focus on the incremental, which could be content slate or a particular title that had some notable strength. But I think, in general, it is the continued adoption of Internet entertainment that is driving our growth,

FIGURE 6-1

FIGURE 6-1 Over-the-top streaming between the content provider and residential locations.

Time Warner’s HBO GO.com division makes no-fee HBO content available online to cable TV subscribers of HBO. Subscribers that pay for HBO can watch any HBO Go content streamed on the Internet. Comcast and other cable companies now embrace TV over the Internet as a strategy to retain profits and subscribers for their pay-TV services in the face of competition from OTT providers.

Specialized set-top boxes for streaming make it convenient for customers to receive streamed video from the Internet. Set-top devices have interfaces that enable communications between homes’ Wi-Fi networks and televisions. The set-top boxes interface wirelessly to home Wi-Fi networks as well televisions. The set-top box connects to the television’s HDMI port. These set-top boxes commonly also have an Ethernet interface to connect the TV to a residential network’s Ethernet cabling if it’s available. Blu-ray players with Wi-Fi and Ethernet interfaces can also be used to stream content from the Internet, as can Internet-connected TVs.

Pay-TV—Skinny Bundles Plus Streaming on Set-Top Boxes

Pay-TV providers (cable and satellite TV) companies have a two-pronged strategy to retain customers that are increasingly moving to OTT streaming to save money on high pay-TV prices and to watch the appealing and more flexible viewing options available by streaming. Pay-TV companies now offer options for lower-cost, pared-down bundles plus streaming services such as Netflix included on their set-top boxes.

To lower prices, and retain customers, they are offering subscribers “skinny” packages that include just the broadcast stations; ABC, NBC, CBS, Fox, The CW, Telemundo, Univision, and the non-commercial PBS, plus HBO or another premium station. Previously, subscribers had to pay for an entire tier of cable channels in order to have the option to subscribe to commercial-free premium stations HBO or Starz.

Technical Challenges

Chris O’Brien, founder of Motionbox (now part of Snapfish, a Hewlett-Packard company) and SoftCom (now part of Interactive Video Technologies), stated in a telephone interview that

  • the challenge today is keeping up with the incredible diversity of tablets, mobile phones, and other devices. All of these different devices are creating an enormous challenge for video publishers, which convert the video into formats compatible with all the different screens and display capabilities.

This is complicated by the fact that there is no single format that can be displayed on devices from different manufacturers. Tablets from companies such as Apple, Samsung, and Dell all use a different format, as do mobile devices that use different operating systems and are connected to mobile networks based on differing protocols.

Even using the same type of compression is no guarantee of compatibility. If otherwise compatible audio and video codecs are stored in a different container (file) format, the video cannot be played. A container is a server with multiple small programs that share an operating system. See the section “Containers: A Newer Form of Server Virtualization” in Chapter 1, “Computing and Enabling Technologies,” for a description of containers. Desktop computers with the same type of audio and video compression as iPods won’t be able to play the same video if the container format in which the compression is stored is different.

There are a number of audio/video container formats (QuickTime, Windows Media Video [WMV], ASF, AVI, and more), and each of these can contain a variety of different audio and video codecs. So, for example, H.264 video with AAC audio in an MPEG4 container might play on your desktop player but not on your iPod, even though they both support H.264 video with AAC audio. Again, this is because they are stored in different containers.

Conversion and Distribution Engines to Process Video

Because of challenges in distributing video content to match the many formats used worldwide, specialized companies such as Brightcove and Ooyala manage the conversion and distribution of video for many online video distributors, including cable TV operators. Other examples are media companies such as online newspapers and magazines, pay-TV operators, and broadcasters.

Authentication and Reporting

Video processing engines perform other tasks associated with distributing video. When cable subscribers watch programs from televisions connected to broadband, the authentication software built into a set-top box automatically sends messages to the cable provider’s networks verifying that this is a legitimate customer with a subscription for particular services such as video-on-demand (VOD).

Authentication is more complex when subscribers attempt to view content from other devices such as a tablet computer. The authentication software needs to determine if this device belongs to a legitimate subscriber. Authenticating a set-top box associated with a particular subscriber is simpler because it involves only a single set-top box, at a fixed location.

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