Is Streaming Video a Goldmine or Bust for Media Companies?

Subscription video-on-demand services (SVOD) like Netflix and Amazon have become a good source of income for media companies. For television networks, advertising and affiliate fees have been a reliable stream of income – and SVOD services have added a new way to make money.

However, analysts are predicting that the revenue from SVOD services could be a problem for companies who want to maintain their primetime audiences – which could, in turn, harm advertising fees and decrease the demand from media buyers for their advertising spots.

For example, CBS is putting popular shows like “The Good Wife” on Amazon Instant Video. Although they are making money on the licensing fees, they are also decreasing the need for viewers to rush home and see the show live. This means they are missing out on the exposure to advertising. If they know they can watch the whole season later on, they are going to be less motivated to see it when it first airs.

What about ratings? While SVOD subscriber rates are growing, there is a very real risk that media companies are hurting their TV ratings. Today’s audiences are growing more accustomed to watching shows on demand – which come with fewer ads. With fewer ad spots and more resistance to advertising, ad revenue could be threatened.

One way to solve the problem would be for media companies to charge higher licensing fees for their content. However, Netflix has rejected offers that were too high, and both they and Amazon are supplementing with original content. Media companies could only go so high without losing out on the SVOD deals.

SVOD currently accounts for 1% of aggregate revenue for the six largest media companies. It is expected to grow in the coming years, and may replace DVD viewing entirely. Traditional TV viewership hasn’t fallen in the past three years despite online streaming content, but only time will tell if it will hurt revenue in the long term.

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