For a growing number of networks, online streaming is the new normal.
Time Warner and CBS each jumped on the bandwagon last week. Cord cutters who want HBO will be able to get it as a stand-alone, Web-delivered service in 2015. CBS, meanwhile, introduced a limited, $6-a-month service ironically dubbed CBS All Access. (Members can't stream episodes of The Big Bang Theory, for example.)
Yet of all the new entrants, Sony (NYSE:SNE) might be taking the most innovative approach. The electronics-entertainment giant has gathered its vast assets in a service called Video Unlimited. The hitch? You need a Sony device to log in.
Content is king, but can it command?
Most of the company's more advanced gadgetry qualifies. PlayStation consoles and Bravia Internet television sets, for example. Blu-ray and Netbox players also offer access to Video Unlimited, as do Xperia phones and tablets. Buy the right hardware, and Sony will give you access to the software and its vast library of movies, games, and TV shows.
But if there's a centerpiece to the strategy it's the PlayStation. Sony has sold billions of dollars' worth of its signature gaming console over the years, including at least 10 million units of the PS4. Streaming could push those totals materially higher.
Earlier this month, at New York Comic Con, Sony unveiled the first footage for Powers, an original series based on the hit comic book of the same name. A 10-episode inaugural season is to begin airing in December on the PlayStation Network. Only those with a console and a PlayStation Plus subscription will have access to the full season.
For Sony, it's a risky but potentially lucrative strategy since PlayStation Plus is already popular among active gamers. More than half of those who have bought a PS4 have subscribed to PlayStation Plus, which costs either $9.99 monthly, $17.99 quarterly, or $49.99 annually according to Capital IQ earnings call transcripts. Powers is another hook.
Deliberately fragmenting the market
Exclusives aren't anything new, of course. Both Sony and Microsoft (NASDAQ:MSFT) have spent millions on tailor-made titles to draw gamers to their platforms. Cable networks have been equally enterprising ever since HBO struck gold with The Sopranos.
Streaming services, too, are investing in originals. We all know the success Netflix (NASDAQ:NFLX) has enjoyed with House of Cards and Orange Is the New Black. For its part, Amazon.com just completed a new "pliot season" for original programming.
The difference in all of these cases is that the companies make it relatively easy for you to access the content. Just pay for a subscription and plug in the credentials using whatever hardware suits you. Sony is no longer interested in that strategy.
Rather, the company's "One Sony" approach is to have multiple segments working together across projects and capturing the lion's share of value throughout. In the case of Powers, Sony Pictures Television is producing and the PlayStation Network is distributing. Incremental gains in PlayStation Plus revenue will remain in-house, while new console sales tied to the show -- if there are any -- will feed operating income after accounting for retail partners' cut of the proceeds.
By contrast, House of Cards only benefits Netflix insofar as it attracts new members. Syndication and related ancillary revenue belongs to Media Rights Capital and, oddly enough, Sony.
A mass market of niches
For investors, it's important to watch the buzz for and response to Powers. If it plays well and a surge in console sales follows, it's a good bet we'll see more networks developing their own custom hardware for controlling distribution -- or even an arms race between cash-rich device makers and network operators. Either way, the rules of the online streaming and cable industry are changing fast.