The Costs and Benefits of Video Streaming

Netflix's innovation strategy, a force in the streaming service industry, reflects a commitment to relentless and strategic innovation. It began as a DVD rental service and evolved into a leading producer of original content.
Key aspects of this strategy include:
Cultivating a Creative Culture: Netflix fosters a culture of creativity and non-conformity. Their work environment attracts diverse talents, encouraging freedom and innovation. Policies like flexible vacations and the 'keeper test' ensure a highly effective team. This culture embraces failure as a learning opportunity, fostering risk-taking and agility in decision-making.
Balancing Innovations: Netflix focuses on both incremental (refining technologies and processes) and radical innovations (industry redefining changes). Incremental innovations include patenting their business model and enhancing streaming quality. Radically, they shifted to streaming services and started producing original content, reducing reliance on licensed content and diversifying revenue streams.
Global Expansion: Recognizing the international future of streaming, Netflix produces region-specific content, balancing universal appeal with local customization. This strategy involves navigating diverse regulations and preferences, supported by a robust content delivery network.
Technology and Market Expansion: Netflix invests in AI and machine learning to enhance content creation and delivery, indicating a focus on technology-driven innovation. Expanding into gaming and interactive media, they cater to varied consumer preferences and adapt to media consumption trends.
In summary, Netflix's strategy demonstrates the power of disruptive thinking and strategic execution. By fostering a progressive work culture, embracing technology, and expanding content, Netflix navigates the future of entertainment.
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Key aspects of this strategy include:
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THE COSTS AND BENEFITS OF VIDEO STREAMING  
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The Costs and Benefits of Video Streaming   
Jillian Scott  
University of Miami  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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Abstract  
The purpose of this paper is to explore the growth of the video streaming industry by analyzing 
the costs and benefits of over-the-top services. Specifically, the paper will portray the rapid 
growth of the video streaming industry and what the future of video streaming may look like. 
The major benefits of streaming services were identified as follows: accessibility, variety, low 
subscription fees, and the ability to reach niche audiences. On the other hand, the major costs 
found were identified as follows: subscription costs of bundling services, the cost of high-speed 
internet, negative social implications, the threat to multichannel video programming distributors, 
the impact on small content providers, and over saturation of services in the marketplace. Factors 
to consider in the future include MVPD consolidation, increased cord-cutting, and the 
reconceptualized video bundle. Other predictions include increased prices for streaming 
subscriptions and the growth of original content. The author concluded that the future of 
streaming will evolve along with changing technologies and the reactions of consumers.    
 Keywords: video streaming, streaming services, over-the-top services   
  
  
  
  
  
  
  
  
  
  
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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Introduction  
If someone heard the phrase “video streaming service” 10 years ago, they likely thought of  
Netflix. If that person heard the same phrase today, they might think of Hulu, Amazon Prime 
Video, HBO NOW, Disney+, or others. These are just a few of the over-the-top services that 
have emerged in the last decade. Over-the-top, commonly referred to as OTT, is on-demand, 
non-broadcast, Internet-streamed video content viewed on a digital display (Seel & Dupagne, 
2010). Across these services, viewers can watch television, film, sports, and other special 
content.   
The video streaming industry is booming. According to a report by the Motion Picture 
Association of America, there were 613.3 million online video service subscriptions in 2018, 
which was a 27% increase from 2017. This increased number of online subscriptions surpassed 
the number of cable customers for the first time, which was at 556 million in 2018 (Liptak, 
2019). More recent data from 2019 validates the strong viewership in streaming and OTT. 
Forbes states that as of 2019, 61% of Americans owned a Smart TV and 52% used OTT services. 
OTT usage was 65% for viewers aged 18 to 34. On average, an OTT customer owns three 
devices they can watch content and subscribe to three different services (Salkowitz, 2019).   
The first three pioneers of OTT are typically recognized as Netflix, Hulu, and Amazon. 
Although these companies are still prominent, they are struggling more than before because all of 
the growing competition. This competition, aside from the few services mentioned above, 
includes Sling TV, Watch TV, Apple TV+, CBS All Access, and many more. It is important to 
note that the growth of OTT would not be possible without the growth of fast, reliable internet 
connection. Additionally, the growth of smartphones and other devices was a key factor in 
streaming.   
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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As a result of the growing video streaming industry, multichannel video programming 
distributors, abbreviated as MVPDs, have been greatly affected. MVPDs include cable operators, 
multichannel multipoint distribution services, satellite services, and satellite programming 
distributors that provide television channels for purchase. These once-key players in the video 
industry have been in steady decline. Although the decline in traditional television is no surprise, 
as it has been happening over the past years, the rate of the decline has been quicker than many 
suspected it would be. For years, it was believed that live sports would maintain the life of 
MVPDs and allow them to compete with streaming services. That is until, however, streaming 
services made live sports accessible to viewers for a lower price. For instance, ESPN’s streaming 
service, ESPN+, launched in 2018 and offers a monthly rate of $5, further threatening the future 
of MVPDs.      
Therefore, it is important to evaluate the costs and benefits of the growing video streaming 
industry with regard to consumers, MVPDs, and all other companies competing for market 
space. This topic is important to investigate because society is currently undergoing a 
revolutionary change in which the way companies make and distribute content, as well as the 
way that individuals view that content. Streaming has become fully embedded into many 
people’s lives due to the growth of devices and services, and it has come to affect most of our 
present society across the workforce, schools, and peoples’ pastimes. Thus, regardless of the 
positive or negative factors associated with over-the-top services, the current growth of these 
services will change the future of video and the way the industry operates forever.   
This paper will first cover the benefits, or advantages, associated with over-the-top services 
to portray the way that these services have changed the lives of consumers. Next, the paper will 
break down the costs, or disadvantages, for consumers and companies. After weighing the costs 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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and benefits, the final section will present predictions on what the future of video streaming 
might entail.   
Benefits of Video Streaming  
Accessibility   
  
The first major benefit of over-the-top video streaming is the accessibility. Content is 
easily accessible from anywhere and on any connected device. This accessibility, coupled with 
technology advancements, has led to a viewing habit referred to as second screen usage. Second 
screen usage occurs when a user is simultaneously active on multiple devices, or screens, while 
viewing video content. Streaming has facilitated second screen usage because people can receive 
content on their smart televisions, smartphones, tablets, laptops, desktops, or any other device 
with a screen and internet connection. Additionally, many services allow users to download 
shows and movies to their devices so that they can watch the content offline without an internet 
connection. This feature is particularly advantageous during times of travel, power outages, or in 
locations with poor internet or service. As an insight from Consumer Reports highlights, 
individuals must have enough storage space on their devices for the media file to download. 
However, if they opt for standard-definition download, a two-hour movie consumes less than 
half a gigabyte of data (Bufete, 2018). This is a significantly low amount, especially since the 
data consumption is typically stopped once a user watches the movie and deletes the download.   
 Because content is available at any time, viewers are not limited to a schedule as they are with 
traditional television. Instead, they can re-watch specific episodes or movies whenever they 
choose to or pause a program and return to watch it later. This flexibility has popularized the 
hobby of binge-watching. Binge-watching is the act of watching video, typically television 
programs, for a long period of time in one sitting. (Birch, 2019). For many viewers, consuming 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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content over a long period of time is a great part of streaming. According to a study done by 
Harris Interactive on U.S. adults who watch Netflix, 76% of US adults reported that 
bingewatching is an escape from their busy lives. Additionally, 79% stated that binge watching 
makes shows more enjoyable.   
  
In 2018, Nielsen conducted studies to better understand over-the-top services in relation 
to demographics and devices. As Nielsen (2018) states, the methods in which consumers receive 
their content is evolving, as more than two-thirds of U.S. homes have connected devices that are 
capable of streaming video. Furthermore, Americans spend almost eight billion hours every 
month viewing content on connected televisions such as Amazon Fire and Apple TV. With the 
evolving media landscape, it is valuable to analyze what the audience and their behavior looks 
like when consuming content. Nielsen’s results in Figure 1 summarized audience composition 
across the different categories of a connected device, live television, set-top-box video on 
demand, and digital. Before examining the results, it is crucial to know the definition of each 
category. Connected televisions, also known as smart televisions, refer to any television that can 
be connected to the internet and access content beyond what is typically offered by a cable 
provider. Connected televisions have interactive Web 2.0 features. Set-top-box video on demand, 
or STB VOD, is content that is consumed by the viewer whenever they want after its original air 
date and time. The VOD feature comes from the hardware device on the television that allows a 
digital signal to be received, decoded, and displayed on a television (Techopedia, n.d.).   
As seen in Nielsen’s table, 3% of live television viewers were aged 18 to 24. This 
demographic also made up 8% of connected devices. For the 55+ demographic, live television 
was the most popular category at 59%, while live television was the least popular category for 
those aged 13-17, 18-24, and 25-34. While live television has the majority of viewers’ time 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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spent, connected devices have substantial consumption. These devices are likely growing due to 
their convenience, and it appears that OTT offerings are more appealing to younger 
demographics.   
Variety  
Another benefit of over-the-top services is the variety of content. Most streaming services 
have a library of original programs and content from current or past shows, leaving subscribers 
with many options for content. This content is typically ad-free and, if not, is almost always 
contains shorter ads than traditional television. In 2019, the popular streaming service Hulu even 
took a stance to limit advertisements to 90 seconds. Prior to the limitation, Hulu’s commercial 
breaks could run from 180 seconds to 240 seconds (Sloane, 2019). This shorter format is 
attractive to many consumers who see advertisements as interruptive or disengaging.   
Low Subscription Fees  
An additional benefit of video streaming is low subscription fees, as individual services 
are considerably less expensive than traditional television plans. Figure 2 portrays some of the 
key streaming providers and their fees (Jones, 2018). As the figure shows, monthly prices for the 
mentioned services range as low as $5.99 for CBS All Access to $40 for Sling TV, which 
includes add-on content. These prices are much lower than the average monthly cable bill of 
$107 (Pressman, 2018). Cheaper subscription rates are advantageous for college students, young 
adults, or any individuals who want to cut down on costs from cable.   
Niche Offerings  
  
The last major benefit of streaming is the ability to cater to a niche audience. Although 
major services such as Netflix or Hulu contain a vast library of content appealing to different 
demographics and interests, some services have found success in catering content to smaller 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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audiences who share an interest. These services populate a library full of content related to a 
certain hobby or genre. For example, DC Entertainment and Warner Bros. Digital Networks 
launched DC Universe, a streaming service catered to fans of comics and superheroes. Niche 
services have grown significantly in popularity, allowing smaller companies to stay alive in the 
increasingly competitive and populated marketplace. Instead of competing with the mass-market 
OTT services, companies have figured out how to target and appeal to passionate, loyal 
individuals. Niche services also typically charge a low fee, adding appeal for subscribers. Fans of 
comic books can subscribe to DC Universe for just $7.99 a month. Niche audience should not be 
overlooked in the competitive landscape, however. A testament to these services’ popularity is 
Crunchyroll, an OTT service focused on streaming anime. As of February of 2017, the service 
had approximately 1,000,000 subscribers. By November of 2018, the service managed to double 
its number of subscriptions to have around 2,000,000 subscribers (Statista, 2019). Another key 
player in the niche market is Disney. After recently launching its highly anticipated streaming 
service, Disney+, the service gained more than 10 million people in a little over a day. In 
comparison to mass-market OTT services, HBO NOW took almost three years to gain five 
million subscribers (Sorrentino & Solsman, 2019). In addition to these streaming platforms, 
adbased video on demand (AVOD) platforms have emerged to give consumers more niche 
offerings. These programs offer free video content for consumers with advertisements. One 
AVOD platform, Pluto TV, has channels dedicated to specific genres such as art-house and 
Westerns (Bylykbashi, 2019). These niche services will likely to grow, as companies perfect the 
art of curating high-quality content for specialized audiences.   
 
 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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Costs  
Subscription Costs   
With all of the benefits associated with OTT services, it is crucial to point out the costs 
that exist as well. A large disadvantage associated with streaming is the subscription costs. 
Although the individual subscriptions are relatively inexpensive as compared to traditional 
television plans, most people have more than one monthly subscription. According to a study by 
Vindicia, the average American subscribes to 3.4 OTT services and pays an average of $8.53 per 
service, for a total payment of $29 a month (Fitzgerald, 2019). SNL Kagan’s data validates this 
point in Figure 3 through their research of the percentage of OTT subscribers having one or more 
multiple subscriptions (Video Advertising Bureau, 2018).   
  
As shown in Figure 3, Millennials are the most likely to have more than four OTT 
subscriptions at 65%, followed by Gen X at 22% and Boomers at 13%. It is interesting to see the 
percentage increase for Millennials for each added subscription. While the percentages are lower 
for the other generations, a considerable amount of Gen X and Boomers still have multiple 
subscriptions. These percentages will likely continue rising as streaming becomes more popular 
and more services are launched.     
The growth of niche and mass-market OTT services is a major driver of costs because 
consumers do not want to be limited to the content on one service. Thus, consumers have an 
inclination to subscribe to multiple services simultaneously. In this sense, the OTT industry is 
reconceptualizing the video bundle. With traditional television, the video bundle was a common 
choice in which consumers would pay for a bundle of channels to increase variety and content. 
Now, people have compiled bundles of streaming services. Some companies have further 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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reconstructed the bundle by selling a package of streaming services. For instance, Disney offers 
offers a bundle containing its streaming service, Disney+, along with Hulu and ESPN+ for  
$12.99 per month (Hein, 2020).    
 
Cost of High-Speed Internet  
An additional downside to streaming is that high-speed internet is required to guarantee 
higher-quality, uninterrupted streaming. If a user’s internet connection is not fast enough, their 
video will likely buffer and freeze. Thus, since high-speed internet is more expensive than a 
standard internet speed, customers must consider this factor and take on the additional cost to 
stream content in the most enjoyable way.   
Social Impact  
  
OTT services can also be seen as having a negative effect on people and relationships by 
being a distraction. Research from the 2019 Consumer OTT Report found that people spend 
more time watching OTT content than they do driving a car or talking to friends and family 
(Salkowitz, 2019). This sheer amount spent watching video content could lead to diminishing 
social skills and less human connections. Binge-watching, although discussed earlier through a 
positive lens, can have negative outcomes by distracting people who spend long amounts of time 
streaming. For instance, a person may fall into a rut in which they are spending their time 
watching television programs and, as a result, lose the motivation to work and be productive.   
Threat to Multichannel Video Programming Distributors   
  
Aside from the price and negative social outcomes, video streaming has hurt MVPDs.  
According to research from Convergence Research Group, 34% of households in the United  
States will not have a traditional television subscription by the end of 2019 (Roettgers, 2019). 
These households are categorized as cord-cutters, referring to people who cancel their pay 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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television subscription in order to switch over to viewing content available on the Internet. A 
step further in this direction are cord-nevers, meaning people who have never paid for a cable or 
satellite subscription and likely never will. With many MVPDs struggling to survive, some are 
staying afloat by realizing the revenue potential in OTT and providing individuals with the 
broadband connection needed to access their streaming applications and services. Some 
television providers have increased prices for their bundle plans with the goal of pushing away 
subscribers to that they pay for the company’s more expensive internet service.   
  
This negative impact has also led to the creation of virtual MVPDs, or vMVPDs, which 
are services that deliver live and on-demand linear television through the internet. In other 
words, vMVPDs do not supply any infrastructure such as coaxial cable, fiber, or satellite 
technology. Examples include PlayStation Vue, fuboTV, and YouTube TV. These services have 
grown in popularity as companies have found a way to reach cord-cutters and cord-nevers 
without needing the resources to go directly to customers. The content from vMVPDs is 
sometimes called a “skinny bundle” due to it containing fewer channels than traditional 
television subscriptions and at a reduced price than what consumers pay for traditional television  
(Engleson, 2018).  
Other MVPDs are battling streaming by joining the game. Comcast launched Xfinity 
Flex, a streaming dashboard made available to cord-cutters who pay Comcast for broadband but 
not for television. Flex comes with a 4K set-top box to stream content and a voice remote, and it 
is free for qualifying households. MVPDs will likely have to continue innovating to keep up with 
the age of streaming. Although the lifespan of MVPDs is unknown, it is certain that they are in 
continuous decline while the OTT industry is expanding exponentially.   
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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Small Content Providers  
  
The growth of OTT services is challenging for small content providers and those unable 
to scale. On one hand, there are fast broadband networks around the world right now making it 
one of the best times to launch an OTT service. However, not everyone can succeed in the 
crowded marketplace. People may be willing to subscribe to multiple services at once, but the 
competition for their subscription is fierce. New companies entering the game must be able to go 
up against the established services and differentiate themselves from the rest of the industry. This 
increased competition may lead to consolidation among smaller content providers, in order to 
scale their content to larger audiences. Although some companies have found success in catering 
to niche audiences, companies must continue to plan out the right content, layout, and price in 
order to stand out to customers.   
Oversaturation  
  
Arguably the largest drawback to streaming services is the sheer amount out there. Many 
believe that there is an oversaturation in the market. This high volume of services makes it 
difficult on the individual services to distinguish themselves and draw in subscribers, as 
consumers might be overwhelmed on which services to choose. Hub’s Research’s online survey 
emphasizes this oversaturation. Hub found that 24% of survey respondents said they have too 
many video services, and 36% said they would drop a video service or two before adding a new 
service. These findings do not have hopeful implications on companies looking to compete in the 
space. However, it is valuable to reiterate that niche services are helping to combat the 
oversaturation by catering to different market. For example, DC Universe will not be directly 
competing with Netflix for customers, because DC is going after fans of comics and superheroes 
while Netflix is going for the mass-market of consumers. This diversification of companies 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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improves the chances of OTT services continuing to thrive. As for the perspective of the 
consumer, it will be interesting to see if consumers continue to keep subscribing to more and 
more services, or if they become stagnant and maintain only a few services at a time. There is 
also the possibility of consolidation of streaming companies that would make the choice less 
overwhelming on consumers.  
Conclusion  
  
In sum, the rise of video streaming and over-the-top services comes with several benefits 
and costs. The major benefits are the accessibility, flexibility, variety, and ability to reach niche 
audiences. On the other hand, the major costs are the subscription costs which add up, the 
required high-speed internet, negative social implications, the impact on MVPDs, and over 
saturation of services in the marketplace. These advantages and disadvantages can help form 
predictions on what the future of video streaming looks like.    
There are several factors to look out for in the coming years during the evolution of the 
media landscape. First, as MVPDs continue to be in decline, consolidation may become more 
prominent. One example is the acquisition of 21st Century Fox by Disney in 2019. More 
companies may start consolidating in order to grow in size, power, revenue, and to prolong the 
survival of MVPDs against OTT services.   
  
Additionally, the phenomenon of cord-cutters and cord-nevers is likely to increase. 
Research indicates that the number of pay television subscribers is falling as the number of 
streaming subscribers is increasing. As discussed before, streaming through vMVPDs will likely 
grow in popularity due to the appeal to customers and content providers.  Also, as people get rid 
of their pay television subscriptions, the content industry will see much more of the 
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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reconceptualized video bundle. It is likely that the norm will be having multiple streaming 
services at once, replacing the once-popular video bundle.   
  
The growth of OTT will likely have effects on the job force as well. With the recent 
growth and demand for streaming services, there will be more jobs for people who want to work 
in the streaming industry. However, there will be heightened competition between the companies 
since consumers have many choices when it comes to streaming. Content providers must now 
compete for attention and money if they want to last in the industry.   
Aside from increased competition, consumers may see a hike in subscription prices.  
Netflix has already raised its rate for its subscribers, and other services will probably follow. 
Customers are willing to pay more for streaming, especially since the individuals services cost 
considerably less than traditional television packages, so companies will likely capitalize on this 
high demand. Additionally, streaming services are incurring more costs through producing new 
content, employing workers, and maintaining the quality of streams, so companies will need to 
increase their rates to keep up with the costs.   
Another prediction is the growth of original content. More and more streaming platforms 
are producing original shows and movies, which allow them to differentiate themselves from 
their competitors. Consumers often enjoy original content since it brings variety and high-quality 
options.    
  
It is clear that consumers have more choices than ever. Just as the last generation saw the 
rise of cable, society is in a current wave of streaming. There is ambiguity as to what will come 
for consumers and media companies in the future, but as a result of OTT, the world of video and 
streaming will never be the same as it was just a few years ago. The future of streaming will 
ultimately evolve along with changing technologies and the reactions of consumers.    
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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Figure 1  
Audience Composition Varies Across Platforms  
  
Note. From “The OTT Experience: Understanding Connected Living Room Audiences”, by 
Nielsen, 2018. (https://www.nielsen.com/us/en/insights/article/2018/the-ott-
experienceunderstanding-connected-living-room-audience/)  
  
  
  
  
  
  
  
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Figure 2  
Guide to Streaming Video Services   
  
Note. From “Guide to Streaming Video Services”, by Jones, M., 2018.  
(https://www.komando.com/money-tips/guide-to-streaming-video-services/427916/) Figure 3  
THE COSTS AND BENEFITS OF VIDEO STREAMING  
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Percent SOV Users by Generation   
  
Note. From “Percent SOV Users by Generation”, by Video Advertising Bureau, 2018.  
(https://www.thevab.com/wp-content/uploads/2018/03/OTT-Ecosystem-Overview-Final.pdf)