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Page last updated at 10:34 GMT, Wednesday, 25 January 2012

Can Netflix compete with 'offline' TV?

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Who will win the video streaming 'war'?

By Alex Hudson
BBC Click

With streaming services now established and a number of web-first companies investing heavily in bespoke and exclusive content, is it time we started speaking of YouTube or Netflix in the same breath as the BBC or Sky?

With the launch of Netflix in the UK came a comment from its CEO Reed Hastings - that it was not competing with similar service Lovefilm but its main rival was Sky, the leading subscription TV provider in the UK.

It doesn't matter to me how the signal is being delivered, it matters to me what I want to watch and how I'm getting to it
Anthony Rose, former iPlayer head

Sky Movies and Sky Atlantic import big US shows and films to an international audience, something that Netflix is hoping to provide for a UK audience unwilling to subscribe to Sky.

On first glance, this seems a lofty claim - a web service known for its watch again services competing with an established company with over 10 million subscribers, the network spending billions of pounds to commission and buy content from the major studios.

'Internet' TV

While current user numbers of streaming services are much lower in Europe - Lovefilm has just over two million subscribers, including both streaming customers and those signed up to its DVD-only service - the potential of the UK and European market is plain to see: Netflix already has 20 million members worldwide.

 film cannisters at the film and VT library
With the move towards digital, archives will be full of servers, not tapes

So can a streaming service really compete with "real" TV?

The term "internet TV" itself seems a little outdated with nearly all major broadcasters providing on demand content and services like TV Catchup offering live streams of all Freeview channels.

Thus far, the true success of streaming TV has been limited because a large number of people are still most comfortable watching television on TV sets.

But with connected TVs now making that possible, often being shipped with software pre-installed, a whole new audience is opening up.

"As much as everyone talks about the disruption of TV from the internet, most people still see the TV as the centre for their entertainment," says Bobbie Johnson, European correspondent for tech site GigaOM.

"Getting onto that screen is the crucial element to becoming massive."

While Netflix might be the most high profile proponent of this trend, it is by no means the only one.

YouTube is spending £100m ($155m) on original content and has plans for around 100 "channels", with everyone from news service Reuters to professional wresting organisation WWE providing original content.

And in the UK, YouTube is a much more easily recognised brand than Netflix is.

People visit the 'You Tube' stand on October 3, 2011 in Cannes, southern France
YouTube is investing an increasing amount of money in original content

"Eventually, consumers may not even be able to tell the difference between a show produced for TV and one made for YouTube," writes Devindra Harawar, of business site Venture Beat.

But away from bespoke content, it is the fight for rights to big ticket dramas and sitcoms that many believe could be the life or death of online TV firms. This has led to predictions of a bidding war.

Even Tesco is involved in video on demand with its purchase of a controlling stake in Blinkbox, a service attracting over two million users a month.

While streaming services remained niche, studios were happy to offer preferential rates to fledgling technology. Now, as the mainstream beckons, so do mainstream prices.

Last year, some movies from Sony disappeared from the Netflix site because, it was reported, a pre-agreed cap on the number of subscribers was exceeded.

In other words, too many people might have been watching for the cut-price deal Netflix had struck.

Analysts now predict that the $180 million (£115m) Netflix spent in 2010 will increase to $1.98 billion (£1.27bn) in 2012.

And with the big corporations well and truly integrated in online services, vested interests could make it even more difficult to buy content.

'Bidding war'

NBCUniversal, News Corporation and The Walt Disney Company all have an ownership stake in Hulu, another streaming service available in the US and Japan.

"Good content is expensive to make, that hasn't changed," says Pete Distad, vice president of distribution at Hulu.

The problem remains that, for most streaming services, much of the content is slightly older than the material offered on mainstream TV.

And it seems like even Netflix itself realises how competitive the market is about to become.

The UK may be a tough market for Netflix to crack but it has an impressive record. In the first half of 2011, it added five million subscribers in North America
Gideon Spanier, The Independent

"It's a bidding war in the UK between us and Sky and we outbid Sky for MGM [Studios]," says Hastings.

"It's not the biggest studio but it's something and we won that bidding and the studios like that because they like to have multiple bidders bidding up the price."

But at the end of it, sat down in front of a TV screen, is the customer going to care where they get their content from as long as it is cheap and what they want to watch is readily available?

"For all the posturing of the technology companies and the trend gurus, it's still all about content rights and whoever has the content rights is going to have the consumer," says Anthony Rose, former head of BBC iPlayer, now co-founder of social TV service Zeebox.

"Big TV networks can spend hundreds of millions of pounds a year on acquiring content because [they have] millions of viewers. Until someone else has big enough pockets to spend that amount of money, they can't compete."

Whereas once, streaming services were relying on the popularity of existing shows already broadcast on other networks, they are now buying exclusive rights to shows.

Netflix is to broadcast programmes like Arrested Development, House of Cards and LilyHammer exclusively.

Online promiscuity

There are a few hurdles to overcome for Netflix in the UK before it becomes considered as a key player in the TV sector.

As well as the bad publicity generated by a change in pricing strategy - causing the loss of hundreds of thousands of US customers - Netflix enters a UK market packed with lots of content already online.

Reed Hastings Co-Founder and CEO Netflix poses during the Netflix UK launch in London
Netflix CEO Reed Hastings believes that LoveFilm is "mostly DVD by post"

This is generally available straight after broadcast and sometimes even before it has appeared on TV, put online by all the major broadcasters and is either free or included in subscription bundles.

For example, there were 1.94 billion programme requests across all platforms for BBC iPlayer in 2011, that works out as over 30 requests per UK resident.

"Online, we're promiscuous," says Rose.

"We will find content from Facebook, from our friends or anywhere. In the future, and we're already seeing this change very rapidly, where you get the content from will make very little difference.

"There is plenty of good content out there, more than you could ever watch, and Netflix could capitalise on this.

"It wouldn't need that much presence on social networks for them to rapidly take over from mainstream broadcasters in popularity."

But what people are realising more and more is that the ease at which content can be viewed is one of the most important things.

Around 10% of iPlayer usage is now through mobile devices - phones and tablets. And it is here where Netflix has historically excelled.

"The winner in this mobile streaming movie and video war will be the one that's on the most devices," says Bridget Carey, senior editor of Cnet.com.

"Right now in the US, Netflix wins... you have to be on every device to win this war."



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