That’ll Be $7.99, Please.

Content Toll

What can you buy for $7.99?  These days, not much.

You can’t go to the movies, can’t buy a video game, can’t buy the latest season of Glee on iTunes, and can’t watch the new premium show everyone’s been buzzing about.

But hold on…  can you? While you may not be able to physically go to the movies for $7.99, you can watch all the movies you want with a Netflix or HuluPlus subscription.  And how about playing a video game?  HuluPlus is now on XBox 360 LIVE- and if you have a Kinect, you can actually ‘play’ your selection as you would ‘play’ a video game (article here).  And catching up on Glee episodes you missed, or previewing the new show everyone’s been buzzing about… without a pricey cable subscription or DVR? Everything’s on HuluPlus and Netflix– and all available at your beck & call on your TV, computer, iPad, phone, PS3, and Wii…

So maybe $7.99 can buy you a little more than you think.  But what exactly does it buy you?

A movie watching experience, a chance to catch up on TV shows, a new way to ‘play’ on a video game system, a new way to watch original content… and all across multiple platforms.  So that $7.99?  I think it buys you an ENTERTAINMENT experience.  And the best part of the entertainment experience?  It’s platform agnostic and the viewing/playing experience matches how people actually consume media– on multiple devices, and when and where they want.

But who uses Netflix and HuluPlus?  It’s not the early adopters or people on the fringe- 7% of all Americans subscribe to Netflix (23.6 million)- that’s more than Comcast, the largest cable TV service in the US.  30 million people use Hulu, and if 100% of these people subscribe to HuluPlus, Netflix and HuluPlus together have roughly 16% of the cable TV market. And even if 0% of Hulu’s users subscribe to HuluPlus, Netflix still has 7% of the market. (note: there is no way possible the services have a 16% market penetration given the fact that 100% of users most certainly do not subscribe to HuluPlus and the fact we assumed zero duplication between HuluPlus and Netflix subscribers)

Even though 7%-16% may not seem statistically alarming, it should serve as a wake up call to any content provider or advertiser who isn’t giving viewers a multi-platform entertainment experience.  Where were Netflix and HuluPlus 2 years ago?  HuluPlus didn’t exist (launched 2010) and Netflix only had 10 million subscribers (2009).  Calculate that growth rate–  pretty high, right?  Alarmed yet?

Now this isn’t to suggest that people are cutting their cable cords and letting their TVs collect dust–quite the opposite– according to Nielsen, ‘Americans watched more television than ever in 2010.’ (article here).  So what does the high growth rate and adoption of services like Netflix and HuluPlus and higher than ever TV watching suggest? Entertainment Convergence.  Gone are the days of labeling something as just ‘TV’ or just a ‘movie’ or just a ‘video game’- if we can play/watch/interact with all these different types of content on multiple platforms, shouldn’t we just call it ‘entertainment?’

The high adoption rate of services like Netflix and HuluPlus, as well as the continued high rate of TV viewing suggests that the more devices we have, the more devices we expect/want our content to be available on- as if to say, if we have the capability to watch/play/interact on more than just one platform, shouldn’t we exploit these opportunities?

Services like Netflix and HuluPlus are on the forefront of this trend– I’m assuming the majority of Netflix and/or HuluPlus users still subscribe to cable- but for how much longer?  What incentive do they have to stay on a traditional cable subscription plan?  For $7.99 Netflix/HuluPlus subscribers can watch what they want, when they want, and on whatever device they want.  And with a cable subscription service?  Viewers can watch their favorite content on TV… and at best, limited content online.

It’s time for a little shake up in the cable industry– and for advertisers.  If viewers are changing their viewing habits, (as the numbers suggest) isn’t it time for advertisers and cable operators to more enthusiastically embrace multi-platform content?  With so many entertainment options/opportunities, its viewers who are in control– and for as little as $7.99 a month. How much longer will subscribers pay 5, 6, and 7 times more?

I think we have a few more years before we see drastic cable cutting- but it will be the advertisers/providers/operators who are flexible enough to embrace change and who are willing to innovate who will be able to keep viewers.  And those that refuse to look outside of the traditional TV ‘box?’ They’ll pay more than a $7.99 toll for lost subscribers…