THE FUTURE OF ONLINE ENTERTAINMENT
As the speed and quality of IP video transmission continue to rise, broadband diffusion grows, more efficient and portable media players continue to proliferate, and interaction between consumers and video content providers becomes more seamless, the economic viability of the online video entertainment industry seems bound to improve.
At some time in the future, the online and offline television and video industries are likely to become indistinguishable as television sets become more seamlessly integrated with computer-controlled media devices. Even as technological constraints fall away, however, the online video entertainment industry faces significant uncertainties and constraints in the reasonably near future.
Among these uncertainties are technological advances in competing media, the viability of illegal file sharing (especially for movies), and the continuing viability of Internet business models (especially for advertising). Another complex issue is how video delivery costs, content provider prices, and Internet service provider (ISP) pricing structures will evolve as consumer bandwidth demands for online video accelerate. For example, more widespread adoption by ISPs of data caps or other bandwidth usage-sensitive pricing may result in heavy video entertainment users paying effectively higher prices per movie or TV program, reducing demand for online video.
Perhaps the greatest economic constraint on the online video entertainment industry in the reasonably near future may be limits on the availability of recent movies and television programming from content providers. As we have seen, the owners of these programs maximize their profits by releasing their products to a variety of different media over time. At least in the short term, MVPDs and ISPs are unlikely to unbundle their ‘TV Everywhere’ portals from their offline services or distribute them beyond geographic connection service constraints. The Internet is adopting an increasingly important role in intertemporal content-release strategies, but as long as higher returns per viewer can be realized by earlier release of movies to theaters, and earlier release of television programs on broadcast and cable networks distributed by MVPDs, the ultimate ‘Virtual Video Store’ in which any program is available at any time online will itself be delayed.
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