The seven kingdoms of watchable content and distribution are in turmoil. Watchable content providers are in open warfare with distributors. Powerful dynasties have been discarded to the dustbin of history. Upstart usurpers are in a mad land grab fraught with a combination of peril and promise. Amidst it all average consumers, the people of the kingdoms, engage in open rebellion by joining the either the upstarts or even the wildling pirates in brazen contempt of the established powers that be. As in all battles for supremacy the future is unclear, but one truth remains the same, victors emerge not through power, but through smart alliances.
The Rise of Premium Content Producers
Premium content producers across the realms are seeing their powers paradoxically rise and wane at the same time. With advertising supported models warring with the combined powers of the distributors, consumer electronics manufacturers and the advertising sickened consumers, producers of live content (and to a lesser extent advertising as content) are riding high and getting ever more extravagant in their demands and the networks just keep paying because these content providers are the only ones immune to the ever widening and almost magical power of the DVR.
While the full landscape of content producers is truly at risk to the enchantments of DVRs and rampant piracy, the new upstarts of distribution, most notably Netflix and Hulu, have provided a lifeline to content producers with their desperation to provide a rich menu of content options to lure ever more subscribers.
While Hulu is a fortuitous and prescient joint venture of premium content producers, the fledgling kingdom of Netflix led by the bold risk-taking lord, Reed Hastings, has been struggling to keep its coffers of content full and has gone so far as to move upstream by creating its own original premium content (the well reviewed Lilyhammer). Netflix has had its share of missteps with consumers, but is poised to overcome them with at least part of the success owed to the love of the people for the dispatch of the mad tyrant Blockbuster.
The Fall of Traditional Distribution Networks
Cable and Satellite are strong kingdoms indeed, but they are not beyond having fatal flaws as evidenced by the weekly battles between the distribution networks and the content creators. The magical new internet based distributors in partnership with consumer electronics manufacturers have nearly erased the value proposition of the traditional distributors who are now beset by their own, long suffering people. Much like the old and reviled despot, Blockbuster, the cable and satellite providers treat their people with a loosely veiled disdain that borders on contempt (Comcast being the noted exception that engages in outright contempt).
Through mastering the magic of APIs, Netflix and Hulu have enlisted the consumer electronics industry to begin to dematerialize the need for cable boxes. When combined with recent advances in extreme internet bandwidth, the cable and satellite industries reduction in power nears ever closer. When bandwidth to the home becomes more commoditized and televisions further integrate the functions once relegated to computing devices, cable and satellite companies will be lucky to hold on to any territory outside of being commodity bandwidth providers.
Cable and Satellite's last Ally
Whether it is bravery or folly remains to be seen, but HBO is standing with the cable providers. Their steadfast leader Eric Kessler has been boldly outspoken in both his support for the traditional distribution channels and in his derision of "cord-cutting" as a fad. He may or may not be right about this (but I don't believe that either little finger or the merchant of Qarth would bet with him) but he is right about one thing — HBO's economic model would not support going direct to subscribers.
HBO doesn't have a consumer billing department or a consumer billing system or a consumer customer service team or any of that operational baggage that goes with dealing with consumers; that's the distributor's job. Talk all you want about people willing to pay for it direct, but spinning up the amount of subscriber's necessary to support that after you've upset all of your distributors is more honorable (Eddard Stark) than smart (Lord Balish).
Will an Alliance Emerge?
When viewing the strengths and weaknesses of the players involved, a possibility emerges. HBO has a treasury stocked with premium content, the beginnings of a streaming infrastructure and no consumer facing operational capability. Netflix has the finest streaming capability in all of the realm, the beginnings of a capability in content production and a fully operationalized customer service and billing capability. HBO's approximate 40 million subscribers is definitely higher than the approximately 30 million at Netflix (~22 million streaming customers).