A NOTE ON RESEARCH NEEDS
One of the central questions about video over the Internet is how much benefit, if any, it will eventually have to media consumers. Will it substantially increase the quality and variety of video entertainment products, and reduce prices to consumers? The evidence so far suggests so, but online video entertainment is a still a new industry.
In music and in news, for example, the weakening of intellectual property protections and the trading of established media revenue models for apparently much less lucrative online models has raised questions about whether the transitions to digital music and online news are positive or negative sum games overall.14 While it is challenging to study new and unsettled industries productively, progress can be made to inform these questions. For example, can the sharp decline in DVD sales and rentals since 2005 be attributed to movie piracy, or to consumer substitutions of cheaper online video alternatives? Does the more efficient targeting of online video ads actually result in higher cost-per-thousand ad prices? How valuable to consumers is the ‘long tail’ of online content? More generally, one could attempt to measure consumer surplus generated by online video. Or focusing on segments of the audience, how successful is online video in serving the needs of racial and ethnic minorities?It will also be important for informing policy decisions, such as reviews of proposed mergers, whether MVPDs or ISPs should be constrained by regulation or antitrust from attempting to monopolize online video distribution. For this purpose, establishing a strong economic foundation and clear explanations of the market structure of the industry, or explaining the motives behind business practices, can often be the best support for good policy. Are levels of concentration in online video distribution, for example, reasonably attributable to the natural forces of economies of scale, network effects, or similar economic factors? Are the prices that online content aggregators pay for programming plausibly attributable to monopsony bargaining power? Can the offline-toonline program windowing practices of the major television networks be explained by the standard inter-temporal price discrimination model? Or, can the offline/online video bundling practices of MVPDs be explained by straightforward marketing objectives?
Finally, we mention the value of developing historical analogies by studying policy or market outcomes in other media industries.
For example, what have been the results of competitive battles between premium cable television networks that have attempted to gain competitive advantage through exclusive programming contracts? Or, what has resulted from historical attempts by established media industry players to slow the development of new media industries that threaten competition? How have policy initiatives in these situations affected the outcomes? Such studies can often give us better insight into the likely path of a new industry like online video entertainment, than can study of the new industry itself.NOTES
1. The chapter by Waterman (2004), published in Noam et al. (2004), provides a basis for the present work.
2. See Greenstein (2012) for economic development and analysis of the Internet infrastructure.
3. After spending USS100~150 million to develop video-on-demand (VOD) services, these five studios sold Movielink to Blockbuster in 2007 for US$6.6 million (Ali, 2007).
4. The Federal Communications Commission (FCC) reports on the status of competition in the video industries provide detailed descriptions of events in the online video industry and discuss the wide variety of revenue models, content, and levels of aggregation used or employed in this industry (e.g., FCC, 2012, 2015).
5. Online viewing is relatively concentrated among a small group, but offline TV viewing is pervasive among a broad majority of the population. Nielsen reported that 12.4 percent of all individuals (the highest quintile among the 61.9 percent of individuals who stream at least some video) watched an average of 20.7 minutes of video per day, which accounted for 84.1 percent of all video streaming minutes, but this group also watched roughly ten times as much offline TV per day (241.2 minutes), nearly as much as the average US individual (264.7 minutes) (Nielsen, 2012, Table 8a). See also Liebowitz and Zentner (2012), who found the impact of Internet use more generally on television viewing to be relatively low, but higher among younger Americans.
6. comScore (2013) ranks the top ten sites by the number of video ads viewed. The fourth ranking in terms of ad minutes viewed is the authors’ inference.
7. Telecommunications companies such as Verizon and AT&T use Internet Protocol TV (IPTV) delivery, but for our purposes they are grouped with other MVPDs because they basically offer a linear multi-channel service over private networks. The FCC’s annual reports on video competition include excellent commentary on and analysis of industry development of MVPDs and online video distributors. The sixteenth report, the latest at the time of writing, was published 2 April 2015.
8. YouTube’s total announced budget for all of the 100 channels together was US$100-150 million. YouTube has invested another US$200 million into the programming and added 60 more channels (Efrati, 2012).
9. For a survey article on the cost-efficiency of Internet vs offline video transfer, see Screen Digest (2012).
10. In 2006, Netflix offered US$1 million to the first team that could improve its movie search and recommendation engine by 10 percent, a competition that was eventually won by a consortium of teams in September 2009. The collective knowledge produced by this crowdsourcing contest pushed the boundaries of how machine learning and statistical techniques could handle big datasets, and Netflix immediately created another, more open-ended contest, suggesting that the organization believed the competitive advantage offered from improved search efficiency was worth the investment (Lohr, 2009).
11. The DMCA 1998 imposes statutory damages penalties of between US$200 and US$2500 per act of circumvention or actual damages, and does not preclude the application of copyright violation remedies.
12. SNL Kagan Research (2012b, pp. 3, 5) reported average retail prices of DVD sales and DVD rentals to be US$14.23 and US$2.71, respectively.
13. SNL Kagan Research (2008) reported consumer spending for monthly subscription networks in 2006 to be US$6.5 billion vs US$1.6 billion for spending on PPV movies.
‘Digital video’ (online) spending, first reported by SNL Kagan in 2006, amounted to US$46 million (SNL Kagan, 2012b).14. For discussion of the news case, see Pew Research Center (2011). An empirical study by Waldfogel (2012) finds that the precipitous decline in recorded music revenues since Napster has not significantly reduced the supply of music.
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