Is Video the Future of the Internet?

(Continued from Prior Part)

Online TV service benefits streaming providers and media companies alike

The trend of media companies launching online TV services is picking up. It started with Dish Network (DISH) introducing its Sling TV service for $20 per month. Tech giant Apple (AAPL) has also been in talks with media companies to launch its own web TV service, but the negotiations have failed to bear fruit until now. To get diversified exposure to Apple, you can invest in the PowerShares QQQ Trust, Series 1 ETF (QQQ). QQQ invests 10.4% of its holdings in Apple. Now, different reports from Bloomberg suggest that both YouTube (GOOG) and Hulu are closer to launching their own online TV services. Both these groups are in talks with media giants like 21st Century Fox (FOXA) and Walt Disney (DIS) to gain licenses to stream channels.

This strategy is a win-win situation for streaming service providers as well as media companies, which is why we’re seeing this growing trend. For online streaming service providers, this is an opportunity to grow their user engagement with quality content. For companies like YouTube, user engagement is an important criterion that drives ad revenues. According to Google, mobile viewing time per user on YouTube is now more than 40 minutes per day. This figure could grow fast after YouTube introduces its online TV service.

Price: A major factor in cord cutting

For media companies, this is an excellent opportunity to earn revenues by licensing their content to online streaming providers. This chance is important for media companies, especially when users have started cutting cords in large numbers. Cord cutting is when users cancel their pay-TV subscriptions in favor of online streaming service providers. Price is the most important factor here.

According to Digitalsmiths’ video trend report for 4Q15, about 60% of survey respondents pay more than $100 per month to their pay-TV provider. The chart above shows that about 24% of users pay above $150 per month. This is a major cost for many users, which is why they’re shifting to low-cost streaming service providers like Netflix (NFLX).

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