Netflix looks into the crystal ball

On the Netflix investor relations pages, the company has recently posted its "Long Term View", and it makes for interesting reading.

Regular broadcasting, in the guise of linear TV, is slated as ripe for replacement. If the predictions in the white paper come to fruition, the public looks set to see much the same content as existing linear channels now air, but via entirely different business models. The paper cites some definitions: “From a business terminology standpoint, HBO and ESPN are cable TV networks, and Netflix is an Internet TV network. From a consumer terminology standpoint, however, we are a service and an app, while ESPN and HBO are channels, and WatchESPN and HBO GO are apps.”

They make a statement “Eventually, as linear TV is viewed less, the spectrum it now uses on cable and fiber will be reallocated to expanding data transmission. Satellite TV subscribers will be fewer, and mostly be in places where high-speed Internet (cable or fiber) is not available.” This process is already starting in many countries, where mobile operators are taking over the 700MHz band.

If this is to be the future of TV, linear channels will be few in number, and will focus on live programming: sports, news and reality genres. However, even those broadcasters that run Internet TV lean heavily on the linear model. Program viewing windows are syncing to the first run on linear channels. Program commissioning revolves around maximizing the rating for, say, the 8PM slot. Run times are fixed for a series, and the repeat cycle typically of a week demands recaps at the head of each episode.

Netflix see one of the advantages of the VOD model in that “we are able to provide a platform for more creative storytelling (varying run times per episode based on storyline, no need for week to week recaps, no fixed notion of what constitutes a ‘season’).”

Episodic programming is shackled by the linear scheduling, and is not necessarily what viewers want. They may well want to gorge on a serial, viewing on a run. Perhaps, they may want to view three episodes per night for four days in succession.

All such changes overturn the business models for networks and change the technical infrastructure. Networks will end up losing their transmission networks; instead, they will feed the multichannel video program distributors (MVPD) that operate the multi-platform TV Everywhere services.

The need for master control diminishes, as linear channel number decrease and the insertion of one commercial for all viewers of the channel changes as advertising migrates to more of a WWW model, with targeted advertising automatically inserted according to the view profile.

What of the lean-back viewer who watch one of a handful of channels each night, and just wants to be entertained, without the need to make decisions.

Algorithmic selection of a playlist provides an alternative. Companies like Netflix learn a viewers taste, and offer suitable selections. The algorithm replaces the channel controller, and it is targeted to the individual, rather than the broad-brush appeal of a channel.

The Netflix paper discusses the relationship between ISP and the MVPDs “Broadband is hugely profitable for ISPs, partially because unlike MVPDs, they don't pay content costs, and because there are fewer competitors for high-speed Internet (just telco and cable) than MVPD (which has cable, free over-the-air, two satellite firms, and some telco).”

In the closing paragraphs, they make the statement: “Broadcast networks were huge and growing franchises for decades, until cable viewing started to replace over-the-air viewing.” “If we could look decades into the future at the ways that people access entertainment, we would no doubt see a very different image than we see today - mind-blowing video quality, a proliferation of screens, yet-unimagined natural user interface, and an unbelievable range of choice.”

Is Netflix right, or we will look back in twenty years and smile at these predictions? I believe that the EPG is reaching end-of-life, and recommendation engines and VOD are going to make huge inroads into linear broadcast models. Linear broadcast belongs to a time when recording was difficult, and personal recording but a dream. You watched what you were given. VOD allow viewers to transact directly with the program makers without the interference of the channel scheduler. Internet viewing may be in the minority today, but I wouldn’t bet on the Netflix (and HBO GO, ESPN, BBC iPlayer) model falling over so that linear TV can make a comeback.