Streaming Platforms and Video-Industry Disruption
TL;DR
Background: The U.S. video-content market has undergone a fundamental shift over the past decade, driven primarily by the rise of subscription video-on-demand (SVOD) platforms like Netflix, Amazon Prime, and Hulu. Historically dominated by rigid, long-term licensing deals and inflexible cable bundles, the market has seen that these traditional models no longer align with consumer preferences and market realities. Technological innovations like improved digital-streaming infrastructure and more sophisticated audience analytics have allowed streaming services to enhance user engagement and the user experience with personalized on-demand content. These changes have accelerated the fragmentation of traditional audiences, challenging legacy providers to either adapt or risk becoming obsolete.
But… The rapid growth and success of streaming platforms has revealed stark inefficiencies and competitive disparities in the existing regulatory frameworks. Legacy regulations designed for cable and broadcast television fail to accommodate the flexibility and innovation inherent in the streaming model, creating market distortions and hindering business-model dynamism.
However… A more coherent regulatory approach could better reflect the current market landscape by adopting technology-neutral competition principles. Policymakers can foster greater efficiency, innovation, and consumer welfare by aligning regulations with modern market conditions, thus allowing streaming platforms and traditional video providers to compete on equal footing.
KEY TAKEAWAYS
Streaming Has Transformed the Video Industry
Streaming platforms have fundamentally altered the economics of video-content consumption. Initially, streaming services provided a compelling cost advantage, with hourly content costs as low as 20 cents, compared to cable’s 61 cents. While this cost gap has narrowed slightly, streaming maintains a cost advantage of approximately 50%. Moreover, improvements in broadband infrastructure, compression technology, and content-delivery networks have further enhanced streaming’s quality and reliability.
This value proposition has been enhanced with innovative pricing models, including lower-priced, ad-supported tiers. Additionally, streaming has expanded consumer choice and flexibility significantly. Films and series previously confined to theaters or premium-cable packages now frequently debut directly on streaming services. Furthermore, the substantial growth in original streaming content (from 28 series in 2013 to approximately 491 in 2023) highlights the enhanced diversity available to niche audiences and demonstrates the tangible consumer-welfare benefits of platform competition.
Contractual and Market Dynamics
Streaming has disrupted the industry’s traditional contractual practices. Historically dominated by multi-year, fixed-fee licensing agreements, the industry now relies increasingly on shorter-term and more flexible contracts that respond dynamically to subscriber tastes and market conditions. This shift to more frequent and tailored negotiations has empowered streaming platforms to manage content more effectively but has also introduced complexities, due to the need to manage numerous short-term deals.
The rise of direct-to-consumer (DTC) platforms has also changed the economics of content creation and distribution. Major studios like Disney Entertainment and Warner Bros. are able to bypass traditional distribution intermediaries to engage directly with viewers by prioritizing exclusive content on their own DTC services (Disney+ and Hulu, and Max, respectively). Under this model, content serves primarily as an investment to drive subscriber growth and retention rather than a revenue source through licensing fees. Some studios, such as Sony, have explicitly rejected the DTC model in favor of serving as an “arms dealer” of licensed content to other distribution channels, while others employ a mix of DTC and licensing strategies.
This mix of licensing arrangements requires both streamers and content producers to adopt increasingly sophisticated strategies, with terms tailored closely to performance metrics, audience-engagement data, and real-time analytics. This granular approach allows both producers and distributors to mitigate risk and swiftly adapt to shifting viewer preferences. While such flexibility makes transactions more complex, it also allows for innovation and experimentation, enabling more efficient allocation of resources and ultimately delivering greater value to consumers.
Integration and Bundling
Vertical integration has become a cornerstone strategy in the streaming era, with media giants like Disney and NBCUniversal integrating content creation with direct distribution (and ancillary offerings, like theme parks and merchandising) to control more layers of the value chain. Simultaneously, horizontal consolidation—such as Disney’s acquisition of Fox assets and WarnerMedia’s merger with Discovery—has created scale economies that enhance competitive positioning against rival streaming platforms.
The industry is also witnessing re-bundling trends, albeit fundamentally different from traditional cable bundles. Modern bundles are optional, transparent, and competitively priced, exemplified by Disney’s successful bundling of Disney+, Hulu, and ESPN+, which has significantly reduced subscriber churn.
These bundling and unbundling dynamics are driven primarily by evolving consumer preferences. Consumers regularly adjust their entertainment diet, moving fluidly between bundled offerings that provide broad convenience and à la carte options that allow for highly personalized selections. This continuous market experimentation demonstrates the need for regulatory frameworks that accommodate flexibility, rather than impose static business models. Allowing platforms to respond freely to consumer demand would further strengthen competition in the video marketplace.
Regulation in the Streaming Era
The regulatory frameworks designed for 20th century cable and broadcast markets serve the modern consumer-video marketplace poorly. These legacy rules create artificial barriers to competition, stifle investment, and complicate compliance, hindering innovation and consumer choice. The industry’s ongoing structural transformation and the fluidity of consumer preferences indicate the need for a modernized regulatory approach.
At this moment of heightened consideration of deregulation, Congress and the Federal Communications Commission should emphasize market-driven solutions and targeted reforms that recognize the evolving marketplace. Policymakers should craft principles-based rules that prioritize consumer welfare, transparency, flexibility, and allowing market forces to drive the video marketplace’s future. This would ensure continued innovation, dynamic competition, and enhanced consumer welfare in an increasingly streaming-driven industry.
For more on this issue, see Eric Fruits’ “Video Competition in the United States” and ICLE’s comments to the FCC’s “Delete Delete, Delete” proceeding.