What People Don’t Understand about the Future of 4K

Introduction

While reading about 4K online, I find a lot of people seem to believe some unlikely things about the future of the format. How 4K will be distributed has more to do with what content producers want than what consumers want. Right now people consume HD video through an OTA antenna, a cable box, Blu-ray discs, and streaming online. The only platform that will be used for 4K is streaming.


Why 4K Blu-ray Will Not Happen

Most people do not seem to realize how much content producers hate the disc rental business (for background I highly recommend the book "Netflixed"). A Redbox Blu-ray rental costs $1.49 compared to a $5.99 On Demand or streaming rental. The studios are not behind this. This is due to a quirk in US law that lets anyone that buys a disc rent it out to someone else. The studios want to control the prices of movie rentals and purchases. They will never control this as long as discs are made available. This is the primary reason that 4K Blu-ray will never catch on (though all the costs associated with upgrading hardware and convincing people to pay more for a small increase in picture quality will also play a role).


When Blu-ray first arrived, there was no alternative home video HD distribution platform available. Streaming, while imperfect, offers many advantages to studios. They alone set the prices. The purchase is tied to one account and cannot be easily shared with others. The movie cannot be ripped and easily resold at a lower price. Copies cannot be bought up and rented, undercutting the studios. By simply offering 4K Blu-rays, the studios lose all control. I highly doubt they will do this when streaming (and pinning a download to devices) is so much more profitable and attractive.


Consider Streaming

As it stands, the average US internet connection is 8.7 Mbps (from Wikipedia). This is an increase from 5.3 Mbps in 2011. We can expect average speeds to increase to at least 10 Mbps in the next two years. We can probably expect 10% of the US population to have 4K TVs in two years as well. And the overlap between early adopters and those with fast internet connections is probably high. I do not believe that in the short term there will be enough financial incentive for studios to feed the Redbox monster 4K Blu-rays to overcome the huge long term financial downsides. They can simply direct consumers to streaming (and pinning purchases and rentals).


Now, there are a few arguments people bring out about why streaming cannot be used for 4K. The first is that they have trouble streaming Netflix right now, let alone streaming 4K. This is just a temporary constraint. HEVC will allow a much larger portion of the population to access HD and 4K streaming, and internet speeds have been rising relatively quickly, despite some headlines you might read. My personal experience with Time Warner Cable has been that our Netflix streaming connection has improved like clockwork year after year, to the point that we rarely have any issues streaming Super HD. Adaptive streaming, which upgrades or downgrades the picture based on your realtime connection, also eliminates many of the headaches people used to face with permanent quality downgrades every time the connection dropped. If we do have a (rare) drop in our connection, the picture simply downgrades temporarily rather than permanently. And I believe pinning rentals and purchases to a device will become popular, allowing more people to view 4K content than if real-time streaming was the only option. Planning ahead and waiting for a download to pin is hardly more work than figuring out which Redbox kiosk has the movie you want and driving there and back before and after.


OTA? Not Going to Happen

Many people seem to believe that the OTA antenna broadcasts will be upgraded to support 4K. This seems unlikely for a number of reasons. First, every household would either need to buy a new TV or buy an adapter to continue seeing the broadcasts. The move from analog to HD digital offered enough of a quality increase to justify this, but it seems hard to believe the government is going to get behind a costly upgrade. Look at how many people still buy DVDs! An upscaled 1080i broadcast is not going to be different enough from a 4K broadcast to justify the costs.


There is also the issue of content providers wanting to keep content behind paywalls. FOX is already threatening to remove their content from the airwaves because of Aereo. By its very nature, OTA broadcasts remove all control over content, as people can record and share as they please. With streaming as a secure alternative, content providers will simply direct consumers to their paid online offering. Further, this doesn’t even consider the boon that targeted dynamic advertising offers over conventional advertising, which will only be available with streaming. The government has already been pressuring broadcasters to turn over their spectrum to the cell carriers. Given the disadvantages to all parties involved, it just does not seem likely OTA 4K is going to happen.


As for Cable...

The last distribution platform to discuss is cable/satellite. I could write an entire post on how cable is going to be forced to change going forward, but for now let’s just focus on the direct effect of 4K. First, more and more content providers are experimenting with distribution outside of the normal cable model. The WWE just launched their own 24/7 streaming channel completely separate from cable. What does this have to do with 4K? Everything.


Even if other networks do not immediately separate themselves from cable, there are too many differentiation advantages to keeping 4K content in their own apps. When AMC wants you to watch their content, do they want you to use your cable box and the Time Warner Cable TV app on your streaming box? Or would they rather that you be forced to open the AMC app and stay in their little ecosystem. I don’t think that cable providers are going to want to pay enough for the 4K content to keep it within the cable box and cable app ecosystem. Not enough people are going to have the equipment to view it at first, not enough people are going to care enough to go upgrade their cable box, and cable companies are just slow in general to adapt. But companies like AMC are going to want to distribute 4K content to compete with Netflix and others, so it will have to be through their own apps (with a cable subscription, of course).


When TWC finally gets around to supporting 4K (I’m not referring to On Demand, which probably won’t take too long, but linear) what seems more likely? That they will flip a switch on the available TWC apps that allow 4K streaming (easy), or that they will create all new boxes with set-in-stone interfaces, that can’t be easily upgraded to support targeted dynamic advertising, and that customers probably will be unaccustomed to using for their 4K content? Will customers be willing to rent boxes when they can just use a "free" app? Everything is moving to streaming, and 4K is going to kill the cable box once and for all. Perhaps providers will move to a cloud DVR or a DVR that simply hooks up to your router and streams to your TV app. But it seems hard to imagine them investing in creating, distributing, and maintaining all new cable boxes right away. The landscape is changing so quickly that by the time they get around to it, no one is going to want them.

What the Future Looks Like

Sue is doing her Christmas shopping and knows her nephew Tyler likes movies. She walks into Walmart, picks up a "Transformers 4: People Paid Last Time so Why Not" Movie Card. The cashier activates it at the register, Sue tosses it in a Christmas card and mails it to Tyler. On Christmas, Tyler pulls out the card, opens the Google Play Movies app on his phone, and scans the bar code. The app asks, "Would you like to associate this movie with your account?" Tyler clicks yes, and tosses the card in the trash. The app then asks if he would like to "pin" the 4K download to one of his devices, and he selects his Nexus TV box. When he goes to watch the movie later that night, the movie is there ready to go. It is also available to view on every device he owns.


The main advantage of physical discs has always been ubiquity: they can be bought, sold, and transferred anywhere, anytime. But the scenario I just described has all the advantages of streaming and all the advantages of Blu-ray (from a content producer's standpoint). Walmart could even have a machine in the back that produces Movie Cards based on customer demand, completely eliminating any distribution headaches.


Last Arguments Against Streaming

Some people will argue that streaming will never be a viable solution for a portion of the population. But what is a content producer going to choose? A highly profitable and controllable solution (streaming) that reaches 90% of the population (relatively soon), or a less profitable solution that undercuts them at every turn, yet manages to reach 100%? It’s not even a contest, it’s all about the bottom line.


Another argument that people raise comes from videophiles lusting after the highest bitrate. I am one of those people, but they certainly are not even a significant minority of the population. 15.6 Mbps HEVC 4K Netflix streaming is superior to current Blu-rays (at least according to CES attendees).15.6 Mbps is not the end, it’s the beginning. As infrastructure and demand improves, content providers will be able to justify offering "Super 4K" down the line. At the moment, the objective superiority of Blu-ray makes targeting this market through streaming impossible. If someone wants the highest quality, they buy a Blu-ray, they don’t compare streaming providers' offerings. That will change when there isn’t 4K Blu-ray, which I think I have successfully argued. So the higher bitrates will become available as demand for them grows. This has the added benefit of letting content producers target and serve both the cost conscious and the quality conscious.


One last point about 4K Blu-ray vs streaming has to do with Samsung vs Sony. Samsung does not produce content and makes money from selling Blu-ray players, and they mentioned 4K Blu-ray becoming available before the end of the year. Sony, which sells content and Blu-ray players, has created a 2TB 4K streaming box and isn’t talking up 4K Blu-ray. That contrast speaks volumes about how content producers want their 4K content distributed: controlled from end to end.


Data Caps

Data caps are coming, but they aren’t going to change what I’ve previously described. 4K will be considered a luxury good for some time, and those who purchase it are much less likely to be price sensitive. 4K content will hit the scene gradually, and data caps will rise as infrastructure improves.


In Conclusion

I think a lot of people, when considering the future of 4K and television in general, fail to put all the pieces together. They simply look at how things work now and assume that is how it will work in the future. But the landscape is fundamentally different from when HD first hit the scene, and it is doubtful that we will see the same distribution models going forward. A streaming-only distribution model offers the best long term profits for content producers. And in the end that’s all that really matters.


Let me know if you disagree with anything I wrote here. Remember, I am not writing what I think should happen, but what I think will happen based on the players with the power to make decisions.