It is widely assumed that cable companies make money by allowing their customers to have access to content in real-time or recorded on DVRs. The same can be said of the satellite TV companies. Telecom fiber-to-the home products may make money.
The attraction of the video-to-the home market is too great for a number of companies to resist even if the odds for profit are long.
Netflix (NASDAQ: NFLX) has already taken its spot at the head of the streaming video line by converting more and more of its 20 million customers to the product. Firms that hope to challenge Netflix include Hulu, which probably won’t be able to add a sufficient number of customers to be viable. There is already a battle among the shareholders of Hulu because its model is broken. The firm’s CEO may leave the company because of the turmoil.
The same could be said of YouTube which has begun to convert some sections of its website to premium content. This content still sits beside hundreds of millions of amateur videos. These make YouTube a less than ideal place for studios and television producers to offer their content.
The parade of companies which have begun to march into the streaming video market includes Wal-Mart (NYSE: WMT), Amazon.com (NASDAQ: AMZN) and Apple (NASDAQ: AAPL). Each of the firms has such large profitable core businesses that it is hard to see why they would bother with a product which is barely tangential to how they make almost all their money.
Corporations like Amazon and Apple assume that just because they have tens of millions of loyal customers who buy books and smartphones that these same people can be converted to a new business. But, that new business is already full to overflowing with firms which have established well-fortified positions at the top of the market.
It is not that many years ago that GM (NYSE: GM) got into the management consulting and aerospace industries. More recently, Google tried and failed to enter the desktop applications business and online map industry. The Google products are practical from a technical standpoint but are not profitable. Google has more important things to manage. Most of its new enterprises, with the clear exception of Android, have fallen by the wayside.
Amazon and Apple will fail in their attempts to gain market share in the streaming video business. Apple needs to invent a follow-on product to the iPad and may have to do it without Steve Jobs. Amazon has been punished by the market because its profit margins are too low. The e-commerce company will need to energize executives to fix what investors know is broken.
The streaming video market shows that there is such as thing as a bridge too far.
Douglas A. McIntyre
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