Watching Movies Online

Movies are beginning to become an integral part of the online experience for millions of web users. Companies like NBC, HBO, Netflix, Google, Blockbuster and others are getting into the movie streaming market in a big way. The number of people who are now going online to find movies is staggering and large companies, whether they like it or not, are beginning to see the trends and are moving their services online. The film industry has taken years to accept the ultimate reality of the situation, primarily due to their inability to effectively develop a revenue model that makes sense online. Over the years, a number of models have been tried and tested, most of which have been met with only moderate success in comparison to their offline counterparts. We'll review some of the revenue models that have been tested and the state of the market.

Companies like Hulu and Youtube are the most experienced in providing content for free. Production companies are beginning to offer up out of circulation movies that have nearly worn through their revenue generating capabilities in primary markets such as theater ticket and DVD sales. Those movies were the first to be tested using the free model. The idea for generating revenue behind the free content model are fairly plain and don't diverge much from the standard online advertising models that have existed for years. They consist of display advertisements that are paid for on a cost per click or cost per thousand impression basis. One of the reasons film studios have been so hesitant to move to the online model is because of the relatively low revenue generated per viewer with traditional revenue models. This is where innovation in the advertising space is necessary to increase the average value of a web viewer. Hulu is a prime example of diversifying the advertising strategy by offering in video advertisements that must be viewed in order to watch the movie. This means that Hulu is able to generate a significantly higher price per viewer than traditional display advertising. In late 2009, Youtube began testing video targeted advertising, which displays in context targeted text and image overlaid advertisements in videos on youtube.com, this type of innovative approach to revenue generation allows advertisers to get more targeted with their marketing and will effectively increase the amount of revenue generated for each user seeking to watch movies online. The real trick for these companies is to develop a balance between maximizing revenue per visitor and not interfering with the customer experience such that users would be driven to other websites that offer less intrusive forms of advertising.

 Subscription services end up being one of the most profitable revenue models around. They generate, on average, a significantly higher value per customer acquisition than direct payment methods, which makes them a much more valuable commodity. Subscriptions also have properties associated with them that are similar to an investment, such as an average return over time, which allows them to be accrued in such a way that companies with a decent amount of capital are able to pay a significant amount for a customer acquisition. This in turn, increases their ability to advertise profitably, particularly online where continuities dominate most markets. Netflix and Blockbuster have been the kings of subscription models thus far, with netflix boasting over 10 million active subscribers to its services. Although the company started largely as a "movies via mail" platform, it's handling the transition to online delivery much better than other companies, particularly because delivering the content online can cost Netflix alot less in overhead expenditures. This is the model that's most likely to succeed in the short term, but it doesn't solve the problems for major releases which generate hundreds of millions of dollars each month. For those to ever eclipse the revenue generating capabilities of the box office, a new model would need to be in place.

 ISPs like comcast and peer to peer file sharing services like Graboid have been asking consumers to pay depending on usage. Like the subscription model, this has a higher average value per viewer than the free model for watching movies online, but it's typically disdained by consumers who don't understand the concept of bandwidth costing money like gas in their gas tank. What's more, bandwidth usage can fluctuate largely based on video quality and it's not always required to use alot of bandwidth depending on the type of encryption quality that's used to watch the particular movie online. HBO recently partnered with ISPs like fios and Comcast to offer its subscribers content on a 'maximum allotted hours' basis. This is one step in the direction towards paying for bandwidth but more akin to the move by comcast to limit overall bandwidth usage for people interested in watching movies online via downloads or streaming services.

Amazon has tackled taking the Pay Per View business model which has been incredibly successful over Cable networks and moved it online with Amazon Video. This particular service allows users to view a movie for 24 hours, similar to on demand services offered through cable companies, for around $4 per movie. Similar to other on-demand and pay per view services for watching movies, this model is only applicable to new to DVD releases that don't have licensing restrictions that prevent standard rentals.