Google May Beat Netflix to Live TV

Just a couple of days ago, I wrote about what will happen when over-the-top video providers start broadcasting live events – and how that will be a large, spreading crack in the dam that holds up the cable TV bundle.   And then yesterday, Peter Kafka at AllThingsD reported that discussions are underway between Google and the NFL to make it happen.

How’s that for timing?

Notably, the biggest objection to my prognostication came (via tweets, of course) from Mark Cuban and others who argued that bandwidth would be a huge obstacle.  Live means millions of people logging on at once, and sending millions of simultaneous yet personalized streams in real-time without glitches is both hard and costly.  How could an Internet connection possibly offer the quality of service to do justice to a brand as tony as the NFL?

Or, as my head of strategy and business development, Chris Kollas, asked aloud yesterday:  “I wonder what Google has to promise to the NFL in order to win an exclusive?”  The answer to that is almost certainly “very high quality service.”

The bandwidth problem is one that Google is in a unique position to overcome – and in that sense, it’s not surprising that Google can and should be more aggressive than its online competitors in pursuing live events.  In particular, Google has at least three advantages over other video companies:

1. Google has the muscle for the job.  When it comes to the advanced computer science and engineering required for outstanding and reliable video delivery, Google has some of the best and most experienced talent on the planet.  Google has the expertise, the resource base, and the DNA to solve problems like this creatively – through zany combinations of hardware, software, infrastructure and imagination that others can’t or wouldn’t even consider.

2. Google has aligned financial incentives.  Unlike anyone else on the planet, Google actually monetizes network performance – and they do so quite handsomely.  Every time Google makes an investment in high-performance infrastructure that reduces response times, they see search revenues climb.  Witness Google DNS, a service designed expressly for the purpose of speeding up the Internet so consumers will search more times per hour, and Google Instant, a search feature that delivers results (and don’t forget the ads!) to users posthaste so they will click sooner.  Not to mention a spendy investment in high speed fiber in Kansas City.  Whereas Netflix gets its flat $7.99/month for any above-threshold performance, Google sees outsized returns whenever they improve their delivery.

3. Google has a stronger motive.  Google has more to gain.  Despite tremendous efforts, YouTube hasn’t yet achieved critical mass as a go-to destination for top-tier programming, the way competitors like Netflix, Hulu, iTunes, and Amazon have.  Instead, it is still capturing the long tail of video – which means it is capturing the long tail of advertising revenues, too.  Google has already indicated its ambitions for both top-tier advertising and subscription revenues; and yet it hasn’t earned broad recognition on either of them.  As I discussed in this week’s post, premium packages like NFL Sunday Ticket can certainly anchor content offerings to consumers – and more importantly, earn a right for YouTube to be the start page in everyone’s living room.

In the long term, Google won’t be the only Internet video provider to be able to serve up live events.  The cost and capability of providing such service could easily become commoditized with a future generation of architecture, infrastructure, and content delivery services – the Akamai’s of the next generation.  It may take years, but in the meantime, those who innovate and have the muscle and talent to apply to this problem have the chance to earn outsized market share before the others catch up.

Cord Cliff Coming: What Happens to TV When Netflix Streams Live Events?

This article was published as a guest post in AllThingsD, and is republished here for Digital Quarters readers.

Netflix has never streamed a live event, and Reed Hastings says they never will.

Now that’s a wise comment for a disruptor to put unambiguously on the record – especially since the TV networks could immediately pull their content from Netflix if they ever heard otherwise.

But we all know that occasionally CEOs change their minds.

So that’s why I decided to imagine what would happen if Netflix took on live events.

And as soon as I played out the scenario, it became obvious:  sooner or later, they will.


Live Is the Lifeline of Television

Television incumbents wouldn’t need to wave off cord cutting if they weren’t genuinely scared of it.  New data shows that 30% of US Internet users would consider cutting their expensive and relatively despised cable subscription to watch TV exclusively online.

But even with as much content as digital pure-plays like Netflix, iTunes, and Hulu now offer, there’s one outsized variable that’s holding the whole cable bundle together:  live events.

Live events are inordinately valuable.  They have ultimate scarcity:  they happen “right now,” they provide a focal point around which hordes of people come together, and they give their viewers an “I was there!” experience beyond just the content itself.  They are one of the few must-haves in consumers’ media diets.  Personally, I can vouch that the Olympics, the Oscars, and the Boston Marathon news are the only television in the last year that drew this cord cutter’s rabbit ears out of the cabinet.

Live events are what cable and broadcast TV have that Netflix doesn’t:  news, talk shows, and – most importantly – sports.  “The biggest question we get from potential cord cutters is how to watch live sports without paying for cable,” reports GigaOm.  There’s still no feasible alternative.

At least, not yet.


Netflix’s Massive Audience for Mass – and Niche – Media

With 29 million streaming subscribers in the US, Netflix has more video subscribers than Comcast.  And not only do they have the reach, but they also command an enviable share of viewers’ daily attention:  according to BTIG analyst Richard Greenfield, if Netflix were a cable network, it would be the most-watched cable network on the air.

Even more powerful than their reach is Netflix’s legendary ability to target niche audiences with a long tail of content.  Netflix won’t need to spend a billion dollars on NFL rights (though, as Peter Kafka notes, one certainly could).  Instead, they could start organically, with a live stream of the White House Correspondents’ Dinner Roast served up to their political documentary fans and comedy buffs.  It wouldn’t surprise anyone if Netflix found that those most likely to watch the Tony Awards are exactly those who have streamed more than their share of Les Misérables.  And voracious consumers of Pelé and Beckham documentaries would certainly be an easy target for a new offering of pro soccer matches.

If live events and movie reruns sound like the Felix and Oscar of television programming, consider this:  the very first two programs aired by HBO when it launched in 1972 were a Paul Newman movie and a New York Rangers game.

Just as HBO started with hockey, bowling, and wrestling, Netflix could insert the thin edge of the wedge under various niche interests – and as the audience expands, so can the programming.  With TV network ratings shrinking these days, at what point does Netflix surpass NBC in viewership and become a credible bidder for streaming rights to the Olympics?  NBC has those rights locked down through 2020, but if the audience continues to shift online, we could be just two more Summer Olympics away from the first completely cordless Games.


Premium Content Means Premium Revenues

Why would a low-priced, all-you-can-eat subscription service add mass media events to the bundle?  Because eventually they’ll need a new revenue stream – and they can’t justify premium pricing without adding new premium content.

Providing exclusive access to must-have programming like House of Cards and Orange Is the New Black is a great way for Netflix to earn a larger subscriber base in the short term.  But in the long term, more (and more varied) exclusive programming will give Netflix the ability to increase their revenue per user, too.

If Netflix can capture an even greater share of viewers’ consumption hours, they’ll be all the more able to justify raising subscription fees in the future.  And not only that, but they’ll be able to leverage the strength of their content into entirely new revenue streams.  A certain segment of the audience would surely pay a few extra dollars per month for a live streaming pass to view all NHL games, and Netflix could use exclusivity to attract more special interests to join their growing audience.  And then someday, once they’ve turned pro at making original productions, Netflix could put some of their best content into a premium package that truly competes with HBO.

The old cable standby of subscription plus advertising isn’t the only way to pull in dual revenue streams.  Selling ads may never make sense for Netflix, but a revenue boost from premium programming is certainly in their DNA.


Netflix Live Will Be the Cord Cutting Catalyst

When Netflix starts streaming live events, the results for incumbent industry players could be catastrophic, as it rips the rebar out of the dam holding back cord cutters.  Consumer behavior has already begun tilting away from TV, and the fragmentation of TV audiences means we’re depending less and less on the major networks for our entertainment.  The tipping point for the mass exodus will be the arrival of better alternatives for viewing live events.

If Netflix listens to their customers (something that cable companies seem to be categorically poor at doing), they’ll realize that Netflix Live would not only bring new “must haves” to its offering, but could potentially convert tens of millions of unhappy cable customers into Netflix subscribers.  It would also give Netflix the edge to charge more for added value down the road.  After all, the economics of cable have proven one thing for certain:  people are willing to pay more for more.

Reed Hastings recently told investors to expect a “redefinition and broadening of what Netflix is.”  With its original programming, we’ve begun to see the power of adding exclusive original content to the package.  The next big step will be live and unplugged.

Facebook’s Chance to Redeem Platform

Facebook squandered their opportunity to become a true platform company, argues Hamish McKenzie in 6,000 words at Pando Daily.  He describes how Facebook raised expectations sky-high at the f8 conference in 2007, only pull the rug out from under the developer ecosystem by repeatedly changing the rules in the years to come.

Hamish is right:  Facebook made a huge mistake with Platform, and it hasn’t achieved anything close to its full potential.  But the biggest obstruction wasn’t the ever-changing developer rules.  Rather, the problem was that developers were able to win eyeballs but not earn revenues.

But Hamish’s eulogy is premature – Facebook could still become the platform company that it set out to be.

All Facebook needs to do is get monetization right – then return to Platform.  And Facebook is now showing signs that they’re at an inflection point in monetization.  Once that monetization matures, Facebook will have a platform of significant interest for app developers.  All they have to do is share the wealth.  No developer would ever have installed Google’s AdSense if the links came without a payment.

Just like Google figured out how to monetize with AdWords before they rolled out AdSense, Facebook needs a credible model with clear economic incentives before app developers will give them a second chance.  But bad feelings notwithstanding, as soon as Facebook comes back to the table with a robust platform that enables apps to generate real profits, even jilted developers will be back – and Facebook will get a second shot at becoming the ultimate platform, the social operating system of the web.