Tuesday, August 17, 2010

Video Quality, Content, and Cable Replacement

Last week researchers at Rice University released the results of a study on subjective video quality. These largely confirm my opinion on the current best streaming service. It's not the video quality, it's the content.

We don't watch movies and shows in a vacuum. Other factors matter. The most important one is that you actually want to watch the content. This is especially true of any service that you might have to pay for. It's the reason why Netflix doesn't have a streaming only plan, those DVDs help augment their limited but growing library of streaming content. Without the extra DVD many subscribers would have lower satisfaction as the ebb and flow of licensing cause periods where desirable content is lacking.

Of course, that's only part of the story. The importance of these services is that they are likely to displace our current television service in the long run. For that to happen the services need to not only mimic the television experience, but surpass it. Meanwhile, the cable providers won't rest on their laurels and watch themselves be supplanted. The only way to win this battle is to provide the absolute best overall service for the money.

So long as you've tried them all then you already know what the best service is.

The video quality doesn't matter so much. The user interface is something that we can hack at until we've found every flaw and highlight, but after watching two videos you likely know what you like. You intuitively pick the best service. You've probably already done the cost/benefit analysis without even knowing.

This is a $90 Billion industry. It's an understatement to say that there's a lot at stake. Netflix has become a billion dollar company in roughly a decade. Speculation on a Hulu IPO puts the value at around $2 billion. Online video might be a startup industry, but it's growing fast.

Millions of people have decided that Netflix provides sufficient value and have subscribed. Millions also watch Hulu on a daily basis. Of course, I think Hulu is better. Millions more subscribe to some sort of cable television service and may or may not bother with the other two. There is a lot of strong crossover in these groups. I'm sure most Netflix and Hulu users either still subscribe to cable, or they use other online video services.

All of these services are trying to tip the scales in their favor. Netflix has added thousands of new streaming titles since I last reviewed their streaming library. Hulu adds new content constantly, and they have the advantage of their traditional media ownership. Cable isn't adding new content so quickly, instead they're adding more technology via set top boxes and their own streaming offerings. Of course, the cable companies also get the most money directly from subscribers, their goal is to stop the bleeding.

How does this apply to the customers, though? Well, for one we can't expect a free ride forever. If content shifts online then we'll see more premium services pop up. Netflix is one of them, and increasingly Netflix acts like an old-school premium channel by signing exclusive streaming contracts to lock in content for extended periods of time. Hulu added their Plus service, which is a little different in that it's more akin to a television archive with access to some higher video quality content. It's a very cool take on such a service, but I wonder how broad the appeal will be.

If online video expands and more customers shift away from cable providers we'll also see an increase in broadband prices, especially in monopoly markets. Most markets will continue to have these monopolies, or anti-competitive oligopolies in the short run. Eventually we may see more competition from wireless and wifi providers. During the period where options are limited we're likely to see broadband prices increase as cable subscribers decrease. There will be offset contracts for subscribers to both services, but this will be a big hindrance to those who want to switch away from cable simply to save money.

The point of this exercise is to emphasize that money only matters in the short term. What we need to focus on is value. Money is part of value, so some people may be more inclined to use Hulu and deal with advertising so they won't have another $9+ bill each month. Others hate commercials and love the idea that they can pay a paltry amount to avoid them. Value is very subjective and it requires everyone to evaluate things themselves.

Even video quality is merely part of the value equation and is likely to be a non-issue in a few years. Today's issues include playback smoothness, image quality, and buffering. It is a given at this point that these issues won't exist in another five years. Advances in video encoding, decoding, and hardware will cure the smoothness issue. Competition will cause more providers to offer HD video, and those same advances in delivery will help this video get to you smoothly. Edge networks will help the bigger providers with the buffering, but so will smaller file sizes. These things are problems today, not tomorrow.

The real problem is overall experience. Things like UI design and customer service. Technological and economical challenges are relatively easy to solve. We know where to look, and have a rough idea of what to do. Human interaction is infinitely complex. The larger your user base the harder it is to please everyone. The solutions to these problems don't scale the way others do.

That's why when I review on of these sites I focus so much on getting to the content I want and viewing it. I focus less about what the content is than I do with how it works. The online video services that solve these problems will invariably solve the other problems. So they're the ones worth considering. Beyond that it's all content.

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