Streaming Video Could Water Down TV Profits

US media companies have found a new wonder drug. Its name: subscription video on demand (SVOD).

Licensing film and television content to sites like Netflix and Amazon has become a nice new source of revenue for the industry, fueled by a recent string of rich deals. For TV networks, which have long relied on the dual streams of advertising and affiliate fees, highly profitable SVOD adds a welcome third leg. But analysts say revenue from SVOD could become an unhealthy addiction as companies that previously licensed only older library content begin to license shows from their prime-time lineups. CBS said Wednesday it was putting the first three seasons of "The Good Wife" on Amazon Instant Video, with the current fourth season to follow later this year. That reduces the need for viewers to rush home and see it live, as they will be able to watch the whole season at their leisure later. Companies' growing reliance on SVOD makes them more susceptible to the future performance of online video services. And even if subscriber growth continues, analysts say media companies could end up cannibalizing their own TV ratings.

As a new generation of viewers grows accustomed to online streaming, it may resist watching ads and begin to place greater value on the quality of content than on the newness of content, according to Janney Capital Markets. This could shift viewing away from traditional TV and threaten crucial advertising revenue. Demanding high prices from Netflix and others could theoretically offset any lost ad dollars. But Netflix has already shown it can afford to walk away from deals it deems too expensive. And Netflix and Amazon are both supplementing their offerings with their own original content.