01 Dec Parks Associates: Shifts in Video Distribution Drive the Evolution of Business Models
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December 2, 2019 | Today’s video environment is characterized by consumer choice, a variety of devices, and seemingly limitless content libraries, and it is of paramount importance that companies and services evolve quickly, in line with consumer expectations, to remain competitive.
Effectively, from a distribution standpoint, nearly every company involved in video distribution offers very similar technology, which in turn, has caused the product to be commoditized. On the plus side, commoditization provides certain benefits, including decreasing prices, unified industry standards and innovation in other areas of video distribution, such as UX/UI and monetization.
As a result, content producers and service providers are able to distribute content to consumers more easily and inexpensively than ever. At the same time, video delivery providers face high competition and difficulties in differentiation.
The commoditization of video distribution has also raised concerns among legacy players that vertically integrated companies with massive market caps and cash reserves pose a threat. Market consolidation like Disney’s acquisition of BAMTech and Amazon’s acquisition of Elemental may signal future challenges for end-to-end solutions. Potential challenges for current players in distribution include cross subsidation and increased horizontal integration.
Companies, like Amazon, who make the bulk of their revenue from avenues outside video distribution, are able to cross-subsidize by using revenue from one vertical to subsidize the cost of video distribution. For companies that cannot do this, margins can become so thin that the distribution is no longer profitable at certain price points.
Similarly, large companies can create scenarios by which they evolve to become single vendor solutions for content companies or OTT providers. If they continue to acquire leaders in different spaces in video distribution, tech giants can leverage their increased horizontal integration to squeeze out smaller players.
Despite these challenges, there are also a number of strategies that video distribution companies employ to combat large, horizontally integrated companies:
- Custom solutions: Tech giants are too broadly focused to give individual attention to video distribution clients, and certainly not at the level that companies focused on distribution do. Companies focused purely on distribution, like Brightcove, provide custom solutions for content creators and OTT services, with a level of detail that larger companies simply do not have the resources or industry knowledge to provide.
- Content agnostic solutions: Companies like Amazon and Disney are not only involved in video distribution but also in content procurement and creation. This creates a conflict of interest for other content creators, which select these large tech companies as vendors. Content agnostic solutions are often more appealing to content companies because of this conflict.
- Established niches: Industry specific knowledge can be difficult for large companies, especially within niches, making specific genres and types of content perfect for video distribution seeking differentiation.
Parks Associates will further explore the evolution of business models at its second-annual Future of Video: OTT, Pay TV, and Digital Media on December 9-11 in Los Angeles. Key executives from Viacom, AT&T, Verizon, Pluto TV, and more will address shifting consumer attitudes regarding video services and new strategies to impact retention and consumer perception. DEG Members can register at a 20% discount with code PARKS. Click here to register.
For further reading on current business model trends in the video delivery ecosystem, please check out Parks Associates’ report Shifts in Video Distribution: Getting Content to Consumers.