From Napster to Netflix: How streaming has changed the way we consume media

Over the past decade, how, where and when we consume media have dramatically changed, and it all started with a couple of hackers in 1999.

11 octobre 2016

It used to be that the hour you watched television was as memorable as the show itself. The time slot dictated not only the show’s reception but your entire schedule.

I remember when I would specifically block off one hour of my week to sit and watch the latest episode of Friends on TV. Thursdays at 8:30. No one could tear me away from scenes like Ross yelling “Pivot!” or Chandler trapped in an ATM vestibule with Jill Goodacre. Life was good, unless I missed the episode due to traffic on the way home. Then I'd have to wait for the next rerun. Can you imagine?

Now I still make time to catch my favorite shows, but I’m not racing home to watch them or even sitting in front of a TV. I’m on a 6:30 a.m. BART train to San Francisco, watching from my smartphone.

Over the past decade, how, where and when we watch “television” has dramatically changed. But before we get into that, let us jump into the proverbial DeLorean and travel back in time to see how a couple of teenage hackers unleashed one of the most disruptive technologies that would turn the entertainment world completely upside-down. The year was 1999 and Napster had made its official entrance into the tech world.

The end of an era

The premise behind Napster was simple: connect the online community to a central platform that enabled users to search and share MP3 music files easily and freely using Napster’s P2P (peer-to-peer) technology. Who doesn’t love free music? The number of users jumped from 1.1 million to an astounding 6.7 million from January to August 2000.

The music industry was completely blindsided. Napster’s debut set off the steady decline—and, ultimately, demise—of vinyl (the Album Era) and CD singles. I partly blame falling CD sales on those annoying CD longboxes and plastic trays, but the internet made it clear: why pay for an entire album when you only wanted one song, and why drive to a record store when you could download digitally? Of course, the real underlying question was, why pay for music period?

The RIAA (and Lars Ulrich from Metallica) finally halted Napster’s run in the pursuit of truth, justice and copyright protection in July 2000. Though Napster’s era was short-lived, subsequent tech companies established a legal route to digital distribution with the advent of the MP3 player. By now it was 2003, and the entertainment world (not just the music industry) was beginning to realize that their business would never be the same.

The dawn of on-demand

“The season finale of Game of Thrones has set a new piracy record, with 1.5 million downloads in eight hours, a number that will swell to over 10 million during the days to come.” – TorrentFreak, June 2015

Napster introduced online piracy to our lexicon and made us question the way we buy music. But perhaps more staggering, is how it questioned the way we consume it. That is: anytime, anywhere on practically any device in an instant. We are connected by way of smartphones, tablets, phablets, watches, glasses and even refrigerators.

Napster showed us it’s possible to consume media quickly and on our own terms, introducing a modern war of the roses: the battle between traditional broadcast media and digital streaming tech companies.

Major media disruption

“In a grim reminder of the challenges facing media companies, an estimated 812,000 subscribers pulled the plug on their pay-television service in the second quarter” – LA Times 2016

Let’s face it. The average cable television package is sell-your-first-born-for-HD expensive. Sure, a cable package offers 200+ channels, but how many of those do you actually watch? The rising cost of cable has consumers shifting to an on-demand, a la carte, streaming model that lets viewers choose what to watch, when to watch and how to watch it. Known as “cord cutting”, more people are dropping their cable plan along with the accompanying hardware they are forced to rent and switching to streaming services like Netflix, Hulu or Sling, whose subscriptions are far less expensive.

Digital content is reaching a broader audience quicker than traditional methods (TV and radio) and with more options in the market. The television industry is now fighting for survival—much like the music industry before it. However, the price point of streaming services is just a scratch on the surface. One of the main drivers pulling people away from cable has been the development of original content.

New creators of content

Netflix has been banking on new programming and is estimated to spend at least $5.0B on developing original content for subscribers. What started out as a DVD/movie rental service has become a full-blown entertainment studio.

Just ask Netflix CEO Reed Hastings, who apparently made the right bet.

“The goal, [Hastings] says, is to become HBO faster than HBO can become us." – Reed Hastings interview for GQ magazine, January 2013

Netflix's latest offering includes original series Luke CageThe Get Down and Narcos. My favorite Netflix original right now? Stranger Things, an awesome mish-mash of ‘80s culture mixed with Spielbergian fantasy and Steven King thrillers.

Apparently the content investment is working; at the 2016 Emmy’s, Netflix originals scored four statuettes and 54 nominations. And since 2011, memberships have skyrocketed.

Meanwhile, two of the largest cable service providers Comcast and Time Warner (owned by Charter), are starting to feel the cord-cutting effect. However, interestingly enough, their high-speed internet subscriptions have grown considerably, surpassing their cable subscriber base.

The end of television?

As the a la carte streaming model begins to lure more viewers, is it curtains for cable and broadcast TV? Not just yet. According to a Neilsen’s Q1 2016 Comparable Metrics report, at least 41% of people age 35 and older still watch shows via live television.

Not surprisingly, that leaves our most tech-savvy millennial generation as the core audience of streaming services. Neilsen reported that within the 18 to 34 age group, a combined 50% primarily use their smartphones, PC, tablet or TV-connected device (game console, Roku, connected DVD player, etc) to watch content, while 32% opted for live TV.

Slower to adapt

The demand for internet television has definitely caught the attention of entertainment media, and just like every other non-tech related sector, broadcast companies are finding themselves amid a tectonic shift in the industry caused by a tech-savvy generation.

How are major media companies responding? By identifying that this is, in fact, the future of broadcasting. By changing their business models and working with the technology and not against it. Traditional media companies are also starting to invest in new original content. I stream, you stream, we all scream for internet-protocol-television original content!

HBO: While execs were at one point flattered by the fact that Game of Thrones was the most pirated show in the history of entertainment, they didn’t sit on their laurels for long. In 2015, the company released HBO NOW, a standalone streaming subscription that allows viewers to watch HBO content without a cable contract. They also recently signed a licensing deal with DirecTV, which will allow the telecom carrier to include HBO premium content in their streaming offerings.

DirecTV: Jumping on the streaming bandwagon, DirecTV will be releasing DirecTV Now, which will allow subscribers to stream live TV and on-demand content over the internet without a satellite dish or set-top box. Their deal with HBO sweetens the pot for consumers itching to watch Game of Thrones. This is a smart move, considering Google is reportedly thinking of a similar service through YouTube.

Comcast: The cable provider that people love to hate has also been beta testing their standalone streaming service called Stream TV in select markets. However, the service is only available if you subscribe to Comcast’s broadband service and content is limited once you hit the road. More of a longer leash than true cord cutting, but I guess it's the thought that counts? That, and their broadband subscriber numbers more than make up for it.

Starz, Showtime, Disney, Univision, and CBS: Over the past 18 months, these broadcast networks have developed standalone over-the-top (OTT) service to attract cord-cutters and retain existing customers. And with pricing typically ranging from $8-$15 a month, it positions networks in direct competition with their tech disrupters.

While this solution seems simple, it also places television networks in a precarious situation. Offering lower cost OTT alternatives opens the door to self-cannibalization, where existing cable subscribers opt out of their packages and switch to streaming.

And, as streaming becomes more popular, it means an even greater demand for broadband services (hence the line graphs above) leading to ISPs (internet service providers) like Time Warner Cable and Comcast having to bolster their infrastructure. What does that mean for the tech-enabled populous? Higher internet prices. We just can’t catch a break can we? Definitely larger issues at hand, but for now, let us just live blissfully and enjoy our shows.

More expansion and consolidation

“I’m not going to stop the wheel. I’m going to break the wheel.” 
- Daenerys Targaryen, Game of Thrones Season 5, Episode 8

This is actually one of my favorite lines in Game of Thrones. For me, it describes how technology and the internet are “breaking” industries, forcing companies to look at the future of their traditional operations.

This evolution is definitely having a real estate impact in the Valley and in other markets, evidenced by the recent string of deals and M&A activity. Google has made several acquisitions in the media world, snapping up Anvato (on-demand video publishing), BandPage (digital music), and Skillman & Hacket (VR, 360 video). This is likely one of the reasons why they’ve been acquiring buildings near the YouTube HQ in San Bruno and continue to expand in Sunnyvale.

Netflix has also bolstered their presence in Los Angeles leasing at least 300,000 square feet on Sunset as they are becoming more of a valid Hollywood player. San Francisco’s Twitch.TV landed their expansion deal for 180,000 square feet on Bush Street.

The future of digital entertainment

The way television broadcasting has adapted to new technology is a great example of how disruptive tech is changing industries and pushing traditional companies toward future innovation. Where does the entertainment industry go from here?

The next time you’re streaming your favorite show or movie (wherever that may be), think about this: what if instead of being a mere viewer, you could sit “inside” the show, completely immersed in the scene? Enter the newest player in media: virtual reality technology.

But that, folks, is for another time. Until then, stream on and please don’t download illegal music/movies. Pirating is bad, okay? This has been a public service announcement from your friendly neighborhood tech geek.

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