Holman Jenkins has an interesting piece in the Wall Street Journal about competition in the video market. What he says in essence is that “creative destructionism” (A term coined by economist Joseph Schumpeter in his famous tome Capitalism, Socialism and Democracy, to describe the process of transformation that accompanies radical innovation and its impact on markets) is a reality in today’s video market and few really appreciate it.
I tend to believe too that with technology evolution, it is often the case that few really recognize a new trend until it is overwhelmingly wide spread. There is an old saying that in the short-run we overestimate the impacts of technology and in the long run we underestimate it. Why? Because often a new technology or application explodes into our consciousness via a major magazine expose or major web coverage, with promises that the world will no longer be the same because of the technology or application. Then, the noise dies down and the new gizmo seems to fade from existence. Only to come back years later in a new form and with real sticking power. This happened with the Apple Newton, the first widely known PDA (yes, Apple has made technology blunders). It came out with a rush, then faded from the scene, only to come back in the form of Palm and other Pads.
I’ve seen changes building in the video market place for a long time too and they relate to connectivity to the Internet for video devices. Over the last few months, I have been amazed at how many devices now handle video and have Internet connections built in. The idea that some are trying to promote that video convergence is endemic and “big companies are taking over the video market” is really off base. I am not saying that the cable model (i.e., scheduled programming, dozens of channels, lots of variety) is dead. Far from it. But I do think Internet connectivity in devices, really cheap storage, faster broadband connections, more screens that can handle video, and exploding content sources not tied to traditional programmers is rapidly changing the game. This is all about further fragmentation, choice and competition in the video space.
At Christmas, I finally broke down and bought a Blu Ray player, a 42 inch HDTV (I have a smaller one but am not a big TV watcher so I continued to use my old standard projection TV) and a Wii (primarily for the exercise programs which are phenomenal). ALL of these devices come with Internet connectivity (Ethernet ports and in some cases RGB connections for computers) built in. Both the Wii and Panasonic’s Blu Ray player have deals with online content providers so you can hook on to the web and access video through a number of sources. Panasonic’s Blu Ray player, for example, has deals with Amazon’s movie download service and YouTube. All are widgets built in to the programming on the device which is updatable. I tried out an Amazon movie and it was phenomenal, HD quality. To believe, as some seem to, that the video market is going to be dominated by anyone is hard to understand as new ways to access video multiply and as consumers become ever more demanding.
I don’t want to overplay this because just having connectivity and access via these devices to online programming does not mean people will rush away from cable TV. But it is clear they are getting used to on demand everything and understand what it means when someone in Best Buy says “and this device can go online to get Internet programming.” While it has to be kept in context (because far more people spend far more time watching traditional TV than watching video over the Internet at this moment), relatively speaking online video consumption is booming. 2009 may go down in history as the year when the mainstream viewers joined the early adopters in watching TV on the web. In October 2009, more than 138 million U.S. Internet users watched more than 11 billion videos online - a 26% growth, according to Nielsen. Those numbers account for about 60% percent of the total U.S. Internet audience.
Hulu, which is owned principally by Fox and NBC (Comcast’s partner in its just announced merger) has grown this year more than any other video site. A recent report by Comscore showed that Hulu spiked nearly 47% in October 2009 compared to just the month before. That was the biggest single-month percentage gain of the past year. Unique visitors were also up nearly 10% to 42.5 million, from 38.7 million in September. Minutes per viewer were also up substantially, to 123 minutes from 92 minutes in September. That growth was mainly driven by the up and coming ABC and Fox series such as Glee and V that premiered in September. Again, things have to be kept in perspective because YouTube remains far larger than Hulu. But even so, Hulu is the second largest video distribution web site and growing the fastest.
Verizon’s FiOS in this new world has lots of advantages, not to mention better capacity, better quality and the widget system which can really promote on demand programs. We have incredible content and functionality built into FiOS – including our search and program review capabilities, remote controls using mobile phones, integration with the customers’ home networks and PCs, and widgets. But it is clearly a competitive world out there.
As with voice services in the past and our landline telephone business, the Internet is crashing into the video market and causing lots of change. The market is responding and this year at CES, Internet connectivity for video devices is a huge theme. The one really big exception to all of this is partially sports programming which has to be live to be valuable. Still, even in that space, fantasy online sports games, clips of big plays and access to stats are big and that is all online content too. The video market – just as with data and voice – is highly competitive and the Internet and online services are a major factor.