Regardless of how the Supreme Court rules in the forthcoming Aereo case, rival Internet TV streaming service FilmOn will still have a viable business model, according to Mike Paxton, Senior Analyst at SNL Kagan MRG.

In an Executive Brief – FilmOn: Beyond the Court Cases, an Interesting Business Model – shared with advanced-television.com, Paxton notes FilmOn’s growing library of content, “something that many online video service providers will tell you is the single most important element of a streaming video service,” he observes.

He advises that FilmOn’s basic business is the transmission of video over the Internet. In general, FilmOn allows its viewers to watch two types of video:

• Broadcast TV programming
• A wide variety of special interest video content

Similar to many other streaming video-based business models, FilmOn’s content is targeted at end-users who watch the video on either personal computers or any mobile device with a screen (smart phones, tablet computers, etc.).
He notes that the majority of FilmOn’s content is free, and its basic business model is best characterised as ‘freemium’, meaning that it is advertising-supported, but is available to be watched at no cost. At the same time, FilmOn does offer some subscription-based video content. The company generates revenues from several different sources, to include:

• Advertising
• Sponsored videos
• Subscriptions
• Sales and syndication of proprietary FilmOn video conten
• White label/affiliate partner deals
  Sales of software and network engineering solutions

According to Paxton, these last two revenue generators underline a key feature of FilmOn: In addition to being a streaming video service provider, the company also sees itself as a technology company. The FilmOn platform is fully customisable for white label video services, and it has a team of platform developers (mostly based in the Ukraine) who are constantly upgrading and customising its video service platform.

Another example of FilmOn’s technology focus is the deal signed last year with Lenovo, the world’s largest computer manufacturer, whose products now come pre-loaded with the FilmOn app.

Paxton notes that overall, revenue growth at FilmOn has been slow, but steady. According to company sources, FilmOn’s consolidated 2013 revenues were just under $10 million. For 2014, revenues are projected to grow significantly, as new TV channel sponsorship deals are signed and advertising revenues rise.

According to Paxton, FilmOn’s retransmission of broadcast signals via ‘antenna farms’ to subscribers has led to a number of legal challenges, with US broadcasters such as ABC, CBS, Fox and NBC, claiming that FilmOn (along with its streaming video rival Aereo) is illegally retransmitting their copyrighted content without permission.

FilmOn currently has the antenna farms located in 16 major US cities. However, because of ongoing litigation and appeals of earlier court rulings, FilmOn can only stream broadcast TV shows in three states: New York, Connecticut, and Vermont.

Paxton says that while it is important to recognise how the legal issues, in addition to the upcoming Supreme Court case, are impacting FilmOn’s business and its mindshare, it is also important to note that the free-to-air broadcast business is really just a small portion of FilmOn’s total business. “According to CEO Alki David, the FilmOn X part of FilmOn, which is to say the US broadcast part of the business, accounts for just 3 per cent of total company revenues,” reports Paxton.

“Regardless of the actual outcome of the court cases facing FilmOn, SNL Kagan MRG believes that the online/OTT video market is poised to expand rapidly over the next few years. FilmOn’s core business is in the ‘freemium’ or ad-supported side of the market, which is a growth market. At the same time, the worldwide subscription VoD (SVoD) business, a service capability that FilmOn also offers, is also on track to experience solid growth,” says Paxton.

Paxton says that SNL Kagan MRG has been tracking the online/OTT video market for several years, and is confident that in the coming years the market will continue to grow, continue to change, and continue to attract new entrants and business models.

In terms of how FilmOn is positioned to compete in this market, it offers the following observations:

• While FilmOn’s market position and relative size make it just a small player in the global online/OTT video market, the company is in a market segment that is poised to grow rapidly over the next few years.
• The continued acquisition of video content by FilmOn, either through partnerships or via the creation of original content, is a smart long-term strategy. The next step in the progression of this strategy is to acquire/create even higher-value content (Netflix and Amazon Prime are excellent examples of this type of content acquisition progression).
• As a company, FilmOn has made itself into a legal target for the US TV broadcasters. Some of this ‘targeting’ is likely due to CEO Alki David’s repeated verbal jabs questioning the viability of the broadcasters’ business models. While we concede that many of the points raised by David are valid, the ongoing enmity between FilmOn and the broadcasters may actually end up having a long-term, negative impact on FilmOn, especially when it comes to developing new content and distribution partnerships.
• Regardless of how the Supreme Court rules in the Aereo case, FilmOn will still have a viable business model. Unlike Aereo, which relies on its antenna farm business to generate the vast majority of its revenues, FilmOn’s antenna farm segment is just a small part of its overall business. This means that if the Supreme Court decides for the broadcasters, then Aereo will have to either drastically change its business model or possibly even shut down. This will not be the case at FilmOn. Again, assuming the high court decides for the broadcasters and against Aereo, FilmOn will still have a diverse and viable business model, even if it has to shut down its antenna farms in the US.

“Here at SNL Kagan MRG, we will continue to track what happens with the development of business models in the online/OTT video market segment, including the upcoming judicial decisions and their impact on the industry,” concludes Paxton.

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