The Impact of Online Video Distribution on the Global Market for Digital Content

The Situation

Video distribution platforms are “multi-sided” markets that create value by matching “upstream” (both amateur and professional) producers of video content with “downstream” consumers and, in many cases, advertisers. Traditional platforms like movie theaters and broadcast television are limited in the amount of content they can display (i.e., one program at a time) and the size of the audience they can reach. Online video distributors (OVDs), defined here as any application or service that distributes video over the Internet, face neither limitation. They can offer “on demand” viewing of large video content libraries to anyone with a broadband Internet connection, anywhere in the world.

Policymakers in several countries have expressed concerns about the impact of online distribution on the production and consumption of “local” content, and its impact on traditional video distribution channels such as broadcasting and cable TV. These concerns, in turn, have led to calls for government intervention, including proposals to impose taxes and regulatory obligations designed for traditional distribution platforms (i.e., broadcasters) on OVDs.

NERA's Role

NERA was retained by Facebook and Google to conduct a study that examines the impact of online video distribution platforms on the market for video content. The study begins by providing an economic framework for assessing the performance of video distribution markets. It applies that framework to show how OVDs increase economic efficiency relative to traditional video distribution platforms by capturing economies of scale and scope, by enhancing the ability of consumers to discover and obtain content, and by allowing content producers to more effectively reach interested audiences.

The study then examines the actual performance of video distribution markets around the world, focusing on both output (e.g., the amount and diversity of video content actually being produced and consumed) and inputs (e.g., the number of people and amount of resources devoted to video content production). The data presented in the study show that the emergence of OVDs has been accompanied by an increase in the output of video content and in the revenues and employment of professional content producers, as well as making it possible for millions of platform users to generate and distribute their own independently produced videos and monetize them if desired.

The Result

The evidence and analysis the study presents demonstrate that OVDs have expanded the market for video content of all types, providing content producers with new ways to reach audiences and consumers with new ways to identify and consume the content of their choice. These findings suggest that proposals to impose regulations designed for traditional platforms like broadcast television on OVDs are both unnecessary and undesirable. As an alternative, regulators could consider modernizing, simplifying, and/or lightening regulations for incumbents to increase competition and the availability of quality content to consumers.