The Streaming Market
Helpful and informative Independent filmmaker sources
Is there a big future for streaming?
I'm going to assume you are like most producers: bright, hate statistics, and really would rather avoid the business side of distribution altogether, especially, yuk, marketing, which might require another four years of college....
With a little help, you can understand and do marketing. Principals of marketing are to know how big your potential market is and where it is, how you differentiate your product (movie) from similar products in a competitive environment, what people want and need, potential revenue and costs (equals profit), How much people are willing to pay, the risks and how to control them, and how and where to advertise. OK, time to hire an agency. Well, you really need to know these things even before you make the movie. In this, and another article, we'll break down several of these... in plain English.
This information applies to good quality full length advertised feature films and to some extent, 22 minute sitcoms. As the length gets shorter, there is less opportunity for profit. You may have server fees, bandwidth fees, and you will always have at least a $.30 minimum credit card transaction fee. YouTube distribution, and servers with no CDN bandwidth fee, are probably the best channel for shorter versions, and you can charge a dollar or two so you make some money. The movie has to be good or you won't have an audience and will waste your money.
The short answer to, "Is there a big future for streaming?" is, "This is the future. It's now, and it's big." We're talking profit between $2 and 35 million through an online release followed by release in other venues for successful movies. Profit is revenue minus costs. We're talking about where most Hollywood and Independent movies will make their profit, other than Hollywood blockbuster movies costing over $35 million. Thirty-five million is the breakeven point in theaters for a successful release costing that same amount.
This certainly doesn't mean that theatrical release is dead for Hollywood or Independents. It is simply another venue. But theatrical release makes little money for studios. The trend for years for movie theaters is a special night out to see a Hollywood blockbuster every couple of weeks on average, or a frequent night out for people 5 years either side of age 20. This trend is likely to continue.
What is streaming?
Streaming uses the Internet to bring content (a movie) directly to your TV (or PC), in real time. You generally don't download it, you just watch it. You either have a subscription to a movie site, or you rent the movie from Independent movie distribution sites, and from such large online distributors such as YouTube, Hulu, Netflix, CinemaNow, Amazon Prime, AOL, Apple, Redbox, and others.
To stream, people watch on their PC, laptop, tablet, or on their TV using a streaming device. They can connect these devices to their TV, or connect a "smart" device that uses icons for selecting movies from distributors. They can also connect a Roku or Boxee box to their TV. Some TVs have built in smart devices.
People have been streaming video since the late 1990s. Netflix began a streaming revolution in 2007. Streaming video dominates Internet traffic, sometimes accounting for up to 80% of it. Streaming a video generally requires a 4 Mbps Internet connection or higher. The FCC has pressured Internet Service Providers to provide the actual speed that they advertise. Speeds of 30 Mbps are common, and the speed is rising.
Unlike movie studios, distributors, and theaters, online distribution companies do not publicly report their revenues and profits, so getting a handle on this business requires major research and analysis.
Not all streaming devices are equal. Some of the boxes and devices have limited 1080p and secure streaming capabilities.
Next: What is the Streaming Market Size?
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What is the Streaming Market Size?
If there are only a few people to sell your movie through streaming, then you don't have a large enough market to pay for the movie or make a profit. How many are there?
The Web offers personalized viewing choices, and a lot of it. People prefer to view movies of their choice in the comfort and convenience of their own home, while reserving only an occasional night out to see a Hollywood big screen blockbuster. Their preference is for the newest movie, but Netflix and Hulu figures show that they will even settle for watching old TV programs when TV and cable programming have nothing to offer them.
One of the trends is for younger audiences to watch an entire season of episodes at one marathon sitting. There is a significant trend toward “cord cutting,” which takes cable and satellite out of the picture. Online viewing is a very significant venue.
The market financial size is huge and rapidly growing:
- “In 2012 Americans will pay to consume 3.4bn movies online.” “…corresponding change in movie consumption towards something more TV-like…” - IHS Screen Digest.
- “Americans will pay to consume more movies online in 2012 than they will on physical video formats, marking the first year that legal, Internet-delivered movies will outstrip those of DVDs and Blu-ray discs combined.” - GamerLive.tv.
- Home entertainment spending was $8.4 billion in the first six months of 2012, driven by subscription streaming. Spending on subscription streaming hit $548.6 million in the first half of 2012, up from $85 million in the first six months of 2011. - The Wrap.
- "U.S. consumers spent $3.96 billion to buy or rent TV movies and TV shows in the second quarter this year…." - The Wrap.
- Global Online Movies Market to Reach US $4.4 Billion by 2017, According to New Report by Global Industry Analysts, Inc. - PR Web.com.
The potential market can't be abstract financial numbers based on projections. It has to be defined in concrete numbers. So what is the market penetration of these Internet streaming (OTT) devices?
- Nearly a third (31 percent [of 66 million ]) of U.S. broadband households regularly watch over-the-top content – TV programs or movies accessed from the Internet – on their TVs, according to a new report from Parks Associates. Gartner had forecast 77 million US broadband households by 2012, with 17 countries having household broadband at 60%. - hightable.com, - dmwmedia.com, - networkworld.com.
- A June, 2012 study by online ad supplier YuMe, supports the 31% figure. “…30 percent of Internet-enabled households have some type of TV streaming connection.” - streamingmedia.com.
- According to a Leichtman Research Group survey, “Thirty-eight percent of all households have at least one television set connected to the Internet via a video game system, a Blu-ray player, an Apple TV or Roku set-top box, and/or the TV set itself -- up from 30% last year, and 24% two years ago.” “Just 4% of all households are connected solely via an Internet-enabled TV set, and Apple TV or Roku set-tops are the only connected devices in 1% of all households. - leichtmanresearch.com.
- The number of households in the US is 114,825,428, according to the US Census Bureau. So the number of connected households is 43,633,663. According to these figures, the number of PC, Roku, and Apple devices is 5,741,271. This could be considered a minimum, but extrapolation from Netflix figures gives a much higher actual number, as does a Rider Research study, as shown in the number of streaming devices, below. - census.gov.
- Netflix is currently the pioneer and most important player in the streaming market, even though other companies, such as MovieLink, offered movies for download as early as 2002. Netflix Owns 61% Of US Digital Movie Market Share. Netflix subscribers watched more than 1 billion hours of streamed video in June, 2012, at $8.00 a month subscription price. Netflix has 26.5 million streaming subscribers, plus their mail distribution. - socialtimes.com, - avid.broadcastnewsroom.com
- On older or never released movies that studios allow to be streamed, Netflix pays 60 to 70% of streaming revenue to the studios. Netflix pays small Independent producers from a few hundred dollars, up to $40,000.00, for rights to stream their videos.
The actual number of streaming devices
Netflix provides the best numbers for determining the number of devices available for streaming. According to a survey by Nielsen in July, 2011, 42% of all Netflix users make use of a stand-alone computer to connect to Netflix, 25% do so by using the Wii, 14% by connecting their computers to a TV, 13% make use of a PlayStation 3 and 12% use an Xbox 360. - nielsen.com.
Roku has over 1 million users. Roku says that it has 3 million devices in use. How many of these are 1080p, security enabled, is unknown. “Roku users watch about 12 hours of video on their devices each week…” - techcrunch.com.
Boxee has over 2 million users, which are partly on its 200,000 individual devices, and the remainder on PC and other platforms. However, Boxee doesn’t do SSL, which is required to prevent theft. It is going ahead with plans to do SSL, together with Comcast. - foundville.com, (pcmag.com.
Supporting these figures is a 2010 Rider Research study, Apps and the Living Room State of Mind, stating “10m US users now connect a laptop to their TV.” - narm.com.
The primary audience for streaming movies is approximately the same as Netflix and the cable TV customer (over the air customers tend not to be connected to the Internet). The number of cable TV customers, and digital connected customers are both about equal: 46 million and 47 million. US over-the-air viewers are at 54 million. The digital connected numbers support the Netflix numbers below.- ncta.com, (rbr.com.
The June 2012 YuMe survey “…includes interesting data about how people view connected TV. The largest group, 77 percent, uses game consoles, 34 percent uses Blu-ray Players, 28 percent use smart TVs, and only 25 percent use [streaming devices, such as PCs and set-top boxes] set-top boxes. Note that many households connect in multiple ways.” - streamingmedia.com.
The total number of potential viewing devices can be obtained from the YuMe and Netflix figures.
YuMe: 66 million households x .33 broadband connections x .25 viewers using boxes or PCs = 5,445,000 potential households or viewing devices. The YuMe figure is closer to the 2010 Rider study.
By adding the Netflix “computer” and “computer to TV” (26.5 million streaming subscribers x .42), Roku, and Boxee users, we get 11,130,000.00 Netflix + 3 million Roku + 2.5 million Boxee = 16,500,000
Confirmation: “Nearly a third (31 percent [of 66 million ]) of U.S. broadband households regularly watch over-the-top content – TV programs or movies accessed from the Internet – on their TVs…)” and” 25 percent use [streaming devices, such as PCs and set-top boxes] set-top boxes = 66 million x .25 = 16,500,000.00”
So there are above 5,445,000 to possibly more than 18,340,000 potential US users capable of streaming a video from a Web site to a TV.
The result is a solid figure that the number of online viewers, that is the number of households who can view online movies using smart devices or PCs, is ~ 21,780,000.00. These households usually have more than one device for viewing, such as laptops, PCs, tablets, boxes, and even cell phones.
How many of these viewers can look at Independent Web sites and stream from those? We know that a minumum of 25% of the 22 million households have PCs or boxes connected to their TVs. That figure is ~ 5,500,000 households. We also know that the Netflix “computer” and “computer to TV” (26.5 million streaming subscribers x .42), Roku, and Boxee users, we get 11,130,000.00 Netflix + 3 million Roku + 2.5 million Boxee = 16,500,000. So this number is between 5,500,000 households, and 16,500,000 individuals. At 3 people and 3 devices per household, 5,500,000 x 3 = 16,500,000. The numbers all support each other, and agree with other statistics that I didn't put here.
There are two markets for your movie, and they overlap because they serve the same viewers. One market is the large online distributors, such as Vudu, who have around 22 million potential viewers. The other is the smaller Independent online distributor, which has over 16 million potential viewers. You can start with the smaller Independent distributor, and then go to the larger online distributor to reach 6 million more potential viewers. Either way, advertising will get the most viewers, but the choice will be important in advertising campaigns. Advertising can be done with minimal investment, and will be covered in another article.
Trend to watch: The trend is toward using smart devices to view online movies on the TV. Smart devices do not have browsers, so they eliminate Independent movie sites. The figures keep sliding that direction. At the same time Netflix has greatly increased its number of viewers since 2010. So the Netflix numbers have slid from 18 million to 16 million potential US viewers.
The market limitation is this: Streaming over PCs is dwindling, and neither Roku nor Boxee now provide access to Web sites that show movies, except Roku allows access to icon based Web sites that have Roku channels. So to distribute a movie, you really need to go through the large online distributors, or have an icon based Web site and market to PC viewers.
Now rent your videos through YouTube, and choose your pricepoint. " beta of YouTube Rentals, a pay-to-view model on YouTube. Providing content owners a new way to generate revenue on the site, YouTube Rentals allows partners greater flexibility to monetize a variety of videos, provides full control over their content, and allows content owners to tap into the world's largest online video community. The YouTube Rentals beta is currently available only to content owners in the U.S." YouTube Rentals Beta.
Next: The market for your movie.
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The market for your movie
The numbers don't matter if people aren't interested. Determining market interest is not a straightforward task. There are three phases to determining market interest that tell you whether or not to expect good results from advertising.
An online release attracts both the theatrical and TV audience. The genre of the movie is the best indicator of your market size. You can see the performance of various genres for 2011 at The-Numbers.com article Domestic Theatrical Market Summary for 2011, Heading: Share for Each Genre in 2011. For TV, Nielsen Research gives an indication of the popularity of various TV shows, and you can see the results for shows in your genre.
Independents tend to make a lot of horror films. They are inexpensive to make, and there is always a niche market for them. But they never make much revenue. Dramas are nearly a curse for making a profit. It's best for independents to stay away from them. Adventure and action movies, which are expensive to make because of settings, choreograpy, and production time, do very well financially if you can raise the money to make them.
Genre and rating are very important considerations. Genres like legal dramedies, which are popular on TV, tend not to do well in theatrical release, but keep in mind that online releases attract both audiences. Genre blending is actually a plus for many movie types, particularly if you add just the elements of mystery, comedy, romance, and suspense. If you can get a PG-13 rating, you get by far the biggest audience, followed by an R and PG rating. The least likely ratings to make a profitable income are the G and NC-17 ratings. Independents like the freedom of making whatever they want, and ignoring ratings. But if you are interested in profit, you must be mindful of ratings. The difference between an PG-13 and an R rating is a factor of 2x.
Comedy, which is very hard to write and act effectively, has a lower production cost, and a good mid-range revenue, adding up to good profitability. Romantic comedy, which is much easier to write and perform, is always a good seller.
The second way to determine the market size for your movie is to do market testing. It costs up to $20,000.00 to do focus groups on your movie, and it is well worth it. You can use a test production before you start any production, and make necessary changes. Test audiences will tell you immediately about any problems with the plot, predictability, characters, actors, and any other aspect that will spell doom for your movie. You can correct these before you start principal photography.
The first phase of determining your market is in the writing. Don't use formulas - they don't work. Understand what audiences like and don't like in a story, and architect your story for the audience. You can keep the same basic things in there that you love to write or produce, but ensure you have a market. Writing a winning story is the single most important aspect of making a movie.
You differentiate your movie for investors and in the marketplace by the genre it is in, how you develop it for the market, the uniqueness of it, the cost of making the movie compared to similar movies, and the distribution and advertising method. These are all very important matters relating to the success of your movie, and likely investors will want to know more about your plans for each of these. Investors invest in you, not the movie, and if you aren't on your A game, they won't invest. The really great thing about online distribution is that you go from production directly to distribution. The difficult thing is, you have to know some important things about distribution. More in the next article.
- Dorian
Next article in The Market series: Distribution, Profit Potential, and Advertising.
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Any trademark not listed out of oversight is a Trademark or Registered Trademark of it's respective owner.
Mention of any business in this article is not intended to endorse, disparage, or favor any business.
Movie names that are mentioned are not given reference citations. This is because numerous studios are involved in production, and they then assign distribution rights to multiple distributors, and these rights can be sold to other distributors. For production and distribution information on any movie mentioned, consult the Internet Movie Database, or other authoritative listing.
Copyright © 2012 Dorian Scott Cole
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Copyright © 2012 Dorian Scott Cole
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