“Binge” watching is watching multiple movies or multiple episodes of a TV series in a single sitting. Three quarters of streaming service consumers say they “binge watch” at least some of the time. Delighted by an extensive library of movies and TV series, many are able to see an episode they missed or something they want to enjoy again. We watch as many episodes of the gripping plots as we have time for. The characters become comrades and our need to experience resolution of each episode’s mini-crisis readies us for the next episode. Our brain chemistry keeps us bonded to the series. The lack of commercials or charge per-program is a compelling advantage over classic TV and cable. While the streaming program distribution model is attractive for consumers, it is can be unnerving for advertisers, cable and satellite.
The lack of adverts and the cheap subscriptions suggest that unlimited consumption may be at odds with the financial health of the streaming services. Netflix charges $10 per month and that entitles its almost 70 million subscribers to stream any of its library holdings. Netflix offers some vintage series from TV networks in the 1980s, such as Cheers, NYPD Blue and Inspector Morse, and some more recent fare, such as AMC’s Breaking Bad or The Walking Dead. Some very popular content is expressly created for Netflix, e.g. House of Cards, but a blockbuster exclusive series for streaming service is rare.
At $99 per year, Amazon Prime prices some TV series and movies free for streaming. But the $99 charge also covers free shipping on Amazon merchandise purchases, so it’s unclear how to allocate the $99 between streaming and package shipping. Some of Amazon programs are content that was recently aired or shown in the theater. For those programs, a modest charge applies (e.g., $1.99 for recent season Blue Bloods episodes). Some series (e.g. Cadfael) can be viewed for free, but with adverts spliced into them.
For $5 per month, Acorn’s streaming service includes some of the best programs produced in Britain. Hulu’s streaming service charges $12 per month for commercial free, current season TV series, including CSI Las Vegas, Modern Family and older but popular hits too, such as South Park, and Mork and Mindy. HBO is also entering the streaming business at a $15 per month price point, and there are other streaming operators, including ROKU, VUDU and Apple TV.
Most streaming programs are episodes from TV series. Currently a half-hour TV show costs about $2 million to produce and a full hour costs $3.5 million. There is a venue sequence in which they are aired. Initially, producers sell the first run rights to televise the programs, but that transaction may not recover all the costs they incurred. The producers then sell the same programs for DVD formatting or for overseas markets. Later, they sell the programs for reruns to recover more of the production costs.
Producers will deem a program ready for the streaming market when they cannot find a more lucrative way to extract rights income from it. In the streaming market, producers might agree to a modest fee per viewing or flat fee for a fixed time window. When that window expires, the programs will be removed from the streaming service’s library.
While an individual viewer’s program rights costs may be small, the large scale of a streaming operator’s library and the voracious consumers can mean huge programming costs, costs that escalate when we binge watch.
As streaming subscribership rises, viewership of TV network and cable network programs will decline except perhaps for sports and news. Viewership drops cut network advertising revenues, and with less revenue, the networks must reduce funding for new programs. Eventually success in streaming will reduce the future supply of “previously on TV” programs for the streaming library. Streaming services will need to fund original programs or increase subscription prices, or probably both.
The competitive reactions of TV, cable and satellite networks to streaming operators have become more thoughtful — HBO and CBS have launched their own streaming operations. In networked industries, every connected component has a bearing on the health of the others.
The rights strategies of networks and producers, and thus program funding, are adjusting to accommodate streaming operators. The ad placement strategies of major advertisers have a bearing on which shows are offered to Internet, cable, satellite, TV and cable consumers. In turn that influences the costs for streaming operators seeking programs for their libraries, especially to services that tolerate all-you-can-consume bingeing subscribers.
Along the physical distribution track, sufficient bandwidth must be available to each home for streaming to be feasible. Bandwidth availability is contingent on cable and telephone company investments. Investments track the margins that Internet access operators can earn and the federal regulations that prohibit offering paths specialized for streaming. Streaming and regulations did not need to be in opposition.