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Pay TV as we know it will be dead by 2025, and this is how it will happen

Mark Sullivan | Oct. 9, 2013
The pay TV industry is in transition, retooling itself to produce and distribute content that is streamed, not broadcast.

Now let's look at Internet TV. When streaming TV shows became eligible for Emmy nomination in 2008, Netflix had only about 3 million customers for its streaming service, and Amazon and Hulu had a relative handful each. But from that starting point, it took an online video company—Netflix—just five years to win a major category Emmy (House of Cards director David Fincher won a "best direction" award this September). At the end of the first half of 2013, roughly 55 percent of the U.S. population (age 13 and up) had some type of streaming video subscription, says research house NPD. Of that total, 30 million subscribe to Netflix, at least 7 million watch the Amazon Instant Video service, and Hulu counts more than 4 million Hulu Plus subscribers.

Traditionally, streaming video services have focused mostly on volume, offering as much high-profile Hollywood content as possible. But they're now entering a new phase where the focus is shifting toward providing original content. "The phase where everything they did was to reach a critical mass of subscribers is over," says Albert Lai, CTO of online video platform company Brightcove. "With the switch to original programming, that's when we see them starting to shake things up in the industry."

Netflix has been operating as if it were a Hollywood network for some time now, but it has only recently begun speaking out about it. In its "Long Term View" statement to investors, Netflix refers to itself as a "movie and TV series network."

The company is behaving like a network, too. Many people in the Hollywood establishment were shocked when Netflix bought two seasons of House of Cards for $100 million—and for good reason. "Netflix overbid for House of Cards. That in and of itself may not be sustainable," says IDC digital entertainment analyst Greg Ireland.

But Netflix's content chief Ted Sarandos has been very public about his desire to make a grand entrance as a new kind of content buyer, and he proved it by paying the asking price for Oscar-level acting, producing, and directing talent.

Whether Netflix's investment in House of Cards will pay off in real dollars is anyone's guess, but the company reported that it had picked up 3 million new streaming subscribers during the quarter when House of Cards debuted. If all of those additions were spurred by the new show, Netflix very quickly recouped almost a quarter of its creative investment.

Perhaps more importantly, House of Cards and the latest Netflix exclusive, Orange is the New Black, have made it into water-cooler chitchat everywhere. "Just like people used to talk about cable-produced shows like The Wire and Entourage at work, they are now talking about shows like House of Cards, produced by Netflix," says Brightcove's Lai.

 

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