Can Yahoo! Compete with Netflix and Amazon in the Original Video Market?

It's a great time to be a television fan. 

Between the traditional networks, the basic cable channels, the pay cable channels, and the various companies creating original video content online, TV viewers find themselves presented with more quality programming than at any other point in history. It wasn't that long ago when the only major players in original programming were NBC, ABC, CBS and, eventually FOX. Now basic cable produces some of the highest-quality television like AMC's Mad Men and Walking Dead and The Americans on FX while pay cable offers a wealth of high-end choices including Game of Thrones (and many others) on HBO, Masters of Sex on Showtime, Banshee on Cinemax, and Magic City on Starz. Add the online streaming companies including Netflix  (NASDAQ: NFLX  ) , which has House of CardsOrange Is the New Black and others, and Amazon  (NASDAQ: AMZN  ) , which launched two original comedy series last year, and there might be more good television programming than even the most dedicated viewer can watch.

That's not stopping another potentially large player -- Yahoo! (NASDAQ: YHOO  )  -- from jumping into the crowded space and planning to acquire, "the kind of original programming that typically winds up on high-end cable-TV networks and streaming services like Netflix," The Wall Street Journal reported. 

Yahoo! is close to ordering four half-hour comedies for 10-episode seasons with per-episode budgets ranging from $700,000 to a few million dollars, according to The Journal. 

Why is Yahoo! creating original television-style shows?

The path to monetization is different for every company. Traditional network and basic cable programs follow an ad-driven model while the pay channels and Netflix are pure subscription plays. Amazon is another game entirely as its video service is largely to increase Amazon Prime membership and not directly monetized. For pay services like Netflix or HBO it's not always possible to directly prove how many subscribers a show brings in or retains as you would have to prove the negative of how many people would have dropped the service if not for True Blood or True Detective. It's possible however to track subscriber totals and know in a broad sense if a show is worth the money it costs.

Yahoo! will have a hybrid model that looks a little closer to the one employed by the television networks. On regular TV programs are supported (and essentially paid for) by advertising. That's not the whole story however as bringing in eyeballs for one show allows the network to promote others and gain viewers for those programs. That's why NBC is willing to pay the NFL an estimated $1.05 billion for rights to air Sunday Night Football, according to AdWeek. Even with what AdAge called "TV's costliest show for advertisers with a 30-second spot in the 2013-2014 season averaging $593,700," over $1 billion is a huge price to pay. But football is event television and having it lifts the entire NBC schedule.

Yahoo! needs both more eyeballs and a way to reverse declining ad revenues. In 2013 display advertising revenue was $1.95 billion, a 9% decrease compared to $2.14 in 2012, the company reported.

Launching buzz-worthy new television-style shows could help reverse that trend both by drawing audience for the programs (which ads could be sold against) but also by generating buzz for Yahoo! in general. It's hard to get a lot of mainstream press for a tweak to your email service or a modification of your search algorithm, but sign a hot director and some name stars to create a show and the public relations value can be huge.

This is a risky strategy for Yahoo!

The potential rewards for launching hit -- or even just highly talked about programming -- are high, but so are the risks. With so many players creating quality TV (or TV-like) shows, there could be too much of a good thing.

Chris Albrecht, who once ran HBO and now serves as CEO for Starz, told The Hollywood Reporter that too much of a good thing could be exactly that.

"More is always nice if you are a programmer at heart, as I am. But more is not necessarily better," he said. "It is possible to have too many shows if you can't market them appropriately." 

While Netflix has had success making its shows feel like events, other networks have struggled to gain attention for theirs. Amazon, for example, has gotten a little notice for its Alpha House series thanks to star John Goodman and creator Garry Trudeau (of Doonesbury fame), but its other comedy series, Betas, has mostly gone unnoticed. Yahoo! is also entering a crowded field that's about to get even more crowded as Microsoft  (NASDAQ: MSFT  ) has announced plans for at least six original series for its Xbox One platform and Sony  (NYSE: SNE  )  is launching at least one show on its PlayStation Network, Bloomberg reported.

The viewer is the winner

Yahoo! needs to do something to reverse its declines in display advertising and bring more users to its service. Original programming could do that, but the company is moving into a very crowded market where getting attention for any show has become very challenging. In many ways the biggest challenge is delivering the first hit. If a service or a channel has one show that gets enough attention for people to seek it out, then that program becomes a platform to launch other hits off of.

Finding that first hit to establish your platform as a worthy one is easier said than done, and Yahoo! has the disadvantage of being the last player (so far) to the game. If a hot project is being shopped among the various services, Yahoo! would seem like a latter choice compared to one of the pay cable networks or Netflix.

Still TV is an inexact science and lots of hit shows were passed on by countless networks before blowing up on whatever outlet gave it a chance. The odds may be against Yahoo! succeeding, but the right project could change the fortunes of the web portal and it makes sense to try.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 


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