The Future of Online Video: An Economic and Policy Perspective

Abstract

We explore the economics of the online video entertainment industry to provide a foundation for understanding its economic future and how regulation may affect it. We first document recent development of online video, including market structure, prevailing programming windows, and content aggregation patterns. In spite of its remarkable efficiencies, we identify four potential obstacles to online video’s future growth: competition from increasingly efficient MVPDs, including advantages they have in large scale aggregation of online content via “TV Everywhere” (TVE) services; limited availability of high quality content, especially windowed programming; limited development of successful online business models, especially advertising; and ISP pricing strategies that may raise effective consumer prices of video consumption. In support of our analysis of TVE, we report original research on the “authentication” (of an MVPD subscription) policies of major cable and broadcast programming networks. In conclusion, we discuss the role that FCC regulation or other government policies can play to ensure future competition and open entry in the online video industry.