I'm pleased to present the 169th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. First up today, we review the latest video industry litigation, Cablevision vs. Viacom. We mostly agree that major industry change is unlikely to occur due to the litigation, but rather, over time, the expense of pay-TV and appeal of OTT alternatives will drive changes in consumer choices, which in turn is what will change the pay-TV industry's dynamics.
Speaking of changing dynamics, it's no secret that live TV viewing is under huge pressure as viewers turn to on-demand choices and DVR usage. To help reverse things, Colin discusses an interesting new initiative announced this week by Fox and Watchwith. Fox will be syndicating its FOX NOW "sync-to-broadcast" second screen companion content via Watchwith to numerous network partners such as Shazam, Viggle, ConnecTV and NextGuide, helping drive higher usage and monetization. As Colin wrote earlier this week, it's a clever way of proliferating FOX NOW content and improving the live experience.
Listen in to learn more!
Click here to listen to the podcast (19 minutes, 21 seconds)
Yesterday, Cablevision announced that it has filed suit against Viacom, seeking, among other things, to void a carriage deal it struck just 2 months ago. Cablevision is alleging that Viacom illegally coerced it into carrying 14 of its low-rated cable networks in order to get access to the 8 popular ones Cablevision really wanted.
The most obvious first question to ponder is why would Cablevision agree to a deal in December, only to sue to nullify it in February? Surely the presiding judge will ask something similar. If Cablevision was so perturbed by Viacom's negotiating position, why not bite the bullet and sue then? Another interesting question is that given bundling has been upheld by the courts in the past, what's different this time around?
Following are 4 items worth noting for the Nov 2nd week:
1. Media company and service provider earnings underscore improvements in economy - This was earnings week for the bulk of the publicly-traded media companies and video service providers, and the general theme was modest increases in financial performance, due largely to the rebounding economy. The media companies reporting - CBS, News Corp, Time Warner. Discovery, Viacom and the Rainbow division of Cablevision - showed ongoing strength in their cable networks, with broadcast networks improving somewhat from earlier this year. For ad-supported online video sites, plus anyone else that's ad-supported, indications of a healthier ad climate are obviously very important.
Meanwhile the video service providers reporting - Comcast, Cablevision, Time Warner Cable and DirecTV all showed revenue gains, a clear reminder that even in recessionary times, the subscription TV business is quite resilient. Cable operators continued their trend of losing basic subscribers to emerging telco competitors (with evidence that DirecTV might now be as well), though they were able to offset these losses largely through rate increases. Though some people believe "cord-cutting" due to new over-the-top video services is real, this phenomenon hasn't shown up yet in any of the financial results. Nor do I expect it will for some time either, as numerous building blocks still need to fall into place (e.g. better OTT content, mass deployment of convergence devices, ease-of-use, etc.)
2. Blu-ray players could help drive broadband to the TV - Speaking of convergence devices, two articles this week highlighted the role that Blu-ray players are having in bringing broadband video to the living room. The WSJ and Video Business both noted that Blu-ray manufacturers see broadband connectivity as complementary to the disc value proposition, and are moving forward aggressively on integrating this feature. Blu-ray can use all the help it can get. According to statistics I recently pulled from the Digital Entertainment Group, in Q3 '09, DVD players continue to outsell Blu-ray players by an almost 5 to 1 ratio (15 million vs. 3.3 million). Cumulatively there are only 11.2 Blu-ray compatible U.S. homes, vs. 92 million DVD homes.
Still, aggressive price-cutting could change the equation. I recently noticed Best Buy promoting one of its private-label Insignia Blu-ray players, with Netflix Watch Instantly integrated, for just $99. That's a big price drop from even a year ago. Not surprisingly, Netflix's Chief Content Officer Ted Sarandros said "streaming apps are the killer apps for Blu-ray players." Of course, Netflix execs would likely say that streaming apps are also the killer apps for game devices, Internet-connected TVs and every other device it is integrating its Watch Instantly software into. I've been generally pessimistic about Blu-ray's prospects, but price cuts and streaming could finally move the sales needle in a bigger way.
3. Apple lurks, but how long will it stay quiet in video? - The week got off to a bang with a report that Apple is floating a $30/mo subscription idea by TV networks. While I think the price point is far too low for Apple to be able to offer anything close to the comprehensive content lineup current video service providers have, it was another reminder that Apple lurks as a major potential video disruptor. How long will it stay quiet is the key question.
While in my local Apple store yesterday (yes I'm preparing to finally ditch my PC and go Mac), I saw the new 27 inch iMac for the first time. It was a pretty stark reminder that Apple is just a hair's breadth away from making TVs itself. Have you seen this beast yet? It's Hummer-esque as a workstation for all but the creative set, but, stripped of some of its computing power to cost-reduce it, it would be a gorgeous smaller-size TV. Throw in iTunes, a remote, decent content, Apple's vaunted ease-of-use and of course its coolness cachet and the company could fast re-order the subscription TV industry, not to mention the TV OEM industry. The word on the street is that Apple's next big product launch is a "Kindle-killer" tablet/e-reader, so it's unlikely Steve Jobs would steal any of that product's thunder by near-simultaneously introducing a TV. If a TV's coming (and I'm betting it is), it's likely to be 2H '10 at the earliest.
4. Get ready for the "Anywhere" revolution - Yesterday I had the pleasure of listening to Emily Green, president and CEO of tech research firm Yankee Group, deliver a keynote in which she previewed themes and data from her forthcoming book, "Anywhere: How Global Connectivity is Revolutionizing the Way We Do Business." Emily is an old friend, and 15 years ago when she was a Forrester analyst and I was VP of Biz Dev at Continental Cablevision (then the 3rd largest cable operator), she was one of the few people I spoke to who got how important high-speed Internet access was, and how strategic it would become for the cable industry. 40 million U.S. cable broadband homes later (and 70 million overall) amply validates both points.
Emily's new book explores how the world will change when both wired and wireless connectivity are as pervasive as electricity is today. No question the Internet and cell phones have already dramatically changed the world, but Emily makes a very strong case that we ain't seen nothing yet. I couldn't help but think that TV Everywhere is arriving just in time for video service providers whose customers increasingly expect their video anywhere, anytime and on any device. "Anywhere" will be a must-read for anyone trying to make sense of how revolutionary pervasive connectivity is.
Enjoy your weekends!
Yesterday's announcement by Netflix that it will be adding to its Watch Instantly library past seasons ABC's "Lost," "Desperate Housewives," "Grey's Anatomy" and "Legend of the Seeker" is another step forward for Netflix in strengthening its online competitiveness.
At a broader level though, I think it's also further evidence that the near-term success of Watch Instantly and other "over-the-top" broadband video services is going to be tied largely to deals with broadcast TV networks, rather than film studios, cable TV networks or independently-produced video sources.
Key fault lines are beginning to develop in how premium programming will be distributed in the broadband era. Content providers who have traditionally been paid by consumers or distributors in one way or another are redoubling their determination to preserve these models. Examples abound: the TV Everywhere initiative Comcast/Time Warner are espousing that now has 20+ other networks involved; Epix, the new premium movie service backed by Viacom, Lionsgate and MGM; new distribution deals by the premium online service ESPN360.com, bringing its reach to 41 million homes; MLB's MLB.TV and At Bat subscription offerings; and Disney's planned subscription services. As I wrote last week in "Subscription Overload is On the Horizon," I expect these trends will only accelerate (though whether they'll succeed is another question).
On the other hand, broadcast TV networks, who have traditionally relied on advertising, continue mainly to do so in the broadband world, whether through aggregators like Hulu, or through their own web sites. However, ABC's deal with Netflix, coming on top of its prior deals with CBS and NBC, shows that broadcast networks are both motivated and flexible to mine new opportunites with those willing to pay.
That's a good thing, because as Netflix tries to build out its Watch Instantly library beyond the current 12,000 titles, it is bumping up against two powerful forces. First, in the film business, well-defined "windows" significantly curtail distribution of new films to outlets trying to elbow their way in. And second, in the cable business, well-entrenched business relationships exist that disincent cable networks from offering programs outside the traditional linear channel affiliate model to new players like Netflix. These disincentives are poised to strengthen with the advent of TV Everywhere.
In this context, broadcast networks represent Netflix's best opportunity to grow and differentiate Watch Instantly. Last November in "Netflix Should be Aggressively Pursuing Broadcast Networks for Watch Instantly Service," I outlined all the reasons why. The ABC deal announced yesterday gives Netflix a library of past seasons' episodes, which is great. But it doesn't address where Netflix could create the most value for itself: as commercial-free subscription option for next-day (or even "next-hour") viewing of all prime-time broadcast programs. That is the end-state Netflix should be striving for.
I'm not suggesting for a moment that this will be easy to accomplish. But if it could, Netflix would really enhance the competitiveness of Watch Instantly and its underlying subscription services. It would obviate the need for Netflix subscribers to record broadcast programs, making their lives simpler and freeing up room on their DVRs. It would be jab at both traditional VOD services and new "network DVR" service from Cablevision. It would also be a strong competitor to sites like Hulu, where comparable broadcast programs are available, but only with commercial interruptions. And Hulu still has limited options for viewing on TVs, whereas Netflix's Watch Instantly options for viewing on TVs includes Roku, Xbox, Blu-ray players, etc. Last but not least, it would also be a powerful marketing hook for Netflix to use to bulk up its underlying subscription base that it intends to transition to online-only in the future.
Beyond next-day or next-hour availability, Netflix could also offer things like higher-quality full HD delivery or download options for offline consumption. Broadcasters, who continue to be pinched on the ad side, should be plenty open to all of the above, assuming Netflix is willing to pay.
I continue to believe Netflix is one of the strongest positions to create a compelling over-the-top service offering. But with numerous barriers in its way to gain online distribution rights to films and cable programs, broadcast networks remain its key source of premium content. So keep an eye for more deals like the one announced with ABC yesterday, hopefully including fast availability of current, in-season episodes.
What do you think? Post a comment now.
Clearleap announces Atlantic Broadband as first public customer - Clearleap, the Internet-based technology firm I wrote about here, announced Atlantic Broadband as its first public customer. Atlantic is the 15th largest cable operator in the U.S. I spoke with David Isenberg, Atlantic's VP of Products, who explained that Clearleap was the first packaged solution he's seen that allows broadband video to be inserted into VOD menus without the need for IT resources to be involved. Atlantic initially plans to use Clearleap to insert locally-oriented videos into its local programming lineup. It also has special events planned like "Operation Mail Call." which allows veterans' families to upload videos, plus coverage of local sports, and eventually filtered UGC. By blending broadband with VOD, Isenberg thinks Clearleap gives him a "giant marketing tool" to raise VOD's visibility. As I've said in the past, VOD and broadband are close cousins which can be mutually reinforcing; Clearleap facilitates this relationship.
New Balance's "Made in USA" video - Have you seen the new 3 minute video from athletic shoemaker New Balance? Yesterday I noticed a skyscraper ad for it at NYTimes.com and a full back-page ad in the print version of the Boston Globe. New Balance's video promotes the fact that it's the only athletic shoemaker still manufacturing in the U.S. (though it says only 25% of its shoes are made here). There's also a fundraising contest to win a trip to one of its manufacturing facilities. Taking ads in online and offline media to drive viewership of a brand's original video is another way that advertising is being reimagined and customers are being engaged.
Joost - R.I.P.-in-Waiting - There's been a lot written this week about Joost's decision to switch business models from content aggregation to white label video platform provider. Regrettably, I think this is Joost's last gasp and they are in "R.I.P.-in-waiting" mode. Joost, which started off with lots of buzz and financing ($45M) by the co-founders of Skype and Kazaa, is a cautionary tale of how quickly the broadband video market is moving, and how those out of step can get shoved aside. Joost made a critical strategic blunder insisting on a client download based on P2P delivery when the market was already moving solidly in the direction of browser-based streaming. It never recovered. Given how crowded the video platform space is, I'm hard-pressed to see how Joost will carve out a substantial role.
Cablevision wins its network DVR case - Not to be missed this week was the U.S. Supreme Court's decision to refuse to hear an appeal from programmers regarding cable operator Cablevision's "network DVR" plan. The decision means Cablevision can now deploy a service that allows subscribers to record programs in a central data center, rather than in their set-top boxes. This leads to lower capex, fewer truckrolls, and more storage capacity for consumers. There's also an intersection point with "TV Everywhere," as cable subscribers will potentially have yet another remote viewing option available to them. Content is increasingly becoming untethered to any specific box.
Looking back over the past week's news, there are at least 4 industry items worth noting. Here are brief thoughts on each:
Time Warner starts to acknowledge execution realities of "TV Everywhere" - I was intrigued to read this piece in Multichannel News covering comments that Time Warner Cable COO Landel Hobbs made about its TV Everywhere's plans being slowed by "business rules." Though I love TV Everywhere's vision, I've been skeptical of it because it's overly ambitious from technical and business standpoints. This was the first time I've seen anyone from TW begin to acknowledge these realities (though Hobbs insists "the hard part is not the technology"). I fully expect we'll see further tempered comments from TW executives in the months to come as it realizes how hard TV Everywhere is to execute.VOD and broadband video vie for ad dollars - I've been saying for a while that broadband can be viewed as another video-on-demand platform, which inevitably means that it's in competition with VOD initiatives from cable operators. For both content providers and advertisers, a key driver of their decision to put resources into one or the other of the two platforms is monetization. And with VOD advertising still such a hairball, broadband has gained a decisive advantage. As a result, I wasn't surprised to read in this B&C article that ad professionals are imploring cable operators to get on the stick and improve VOD's ad insertion processes. Cablevision took an important step in this direction, announcing this week 24 hour ad insertion. Still, much more needs to be done if VOD is going to effectively compete with broadband video for ad dollars.
Cisco sees an exabyte future - Cisco released an updated version of its "Visual Networking Index" which I most recently wrote about in February. Once again, Cisco sees video as the big driver of IP traffic growth, accounting for 91% of global consumer IP traffic by 2013. The fastest growing category is "Internet video to the TV" (basically the convergence play), while the biggest chunk of video usage will still be "Internet video to the PC" (today's primary model). Speaking to Cisco market intelligence people recently, it's clear that from CEO John Chambers on down, the company believes that video is THE growth engine in the years to come.
iPhone's new video capabilities - Daisy reviews this in her podcast comments today. It's hard to underestimate the impact of the iPhone on the mobile video market, and the forthcoming iPhone 3G S's video capabilities (adaptive live streaming, video capture/edit and direct video downloads for rental or own) mean the iPhone will continue to raise the mobile video bar even as new smartphone competitors emerge. Nielsen has a good profile of iPhone users here. It notes that 37% of iPhone users watch video on their phone, which 6 times more likely than regular mobile subscribers.
Last Monday's decision by the Second Circuit Court of Appeals, reversing a lower court's March 2007 ruling that Cablevision's plan to deploy a Network Digital Video Recorder (nDVR) violated copyright law has huge potential implications across the video landscape. DVR, Video on Demand and broadband video are all close cousins jockeying for position in the race to provide on-demand choice to consumers. So for those interested in broadband's deployment, it's important to understand ongoing developments in DVR and VOD as well.
Today, I'm pleased to have Mugs Buckley and Colin Dixon, analysts at The Diffusion Group weigh in with their thoughts on last week's ruling.
The Cablevision nDVR Decision: Winners, Losers and How it Relates to Broadband
The August 4th Cablevision nDVR decision by the Second Circuit Court of Appeals opens up the possibility that the company will be able to move ahead with its original nDVR plan, much to the dismay of the plaintiffs, a group of major studios and TV broadcasters. For a primer on the significance of the decision, we offer the following thoughts:
WHAT'S AN nDVR vs. a DVR?
The root of the nDVR case is where a TV viewer's recorded show gets stored: on a hard drive in a DVR located in the home (as is the current model) or on a hard drive in a cable operator's network (as Cablevision and other network operators prefer).
WHY DOES IT MATTER?
To the viewer, it doesn't; since using either approach allows recording and playback of programs.
But since the correlation between digital recording and ad-skipping is well-documented, the studios' and networks' key concern is that nDVR could dramatically accelerate recording usage, thereby accelerating the ad-skipping trend. That would be a big blow to their economic model. For Cablevision and other operators, it's all about cost. Storage in the network is much cheaper than a truck roll to a customer's home and individual DVR box deployments. nDVR also allows the operator to leverage their huge investment in VOD systems.
WHERE DO THINGS GO FROM HERE?
While Cablevision won its appeal, the ruling is far from conclusive. The next step is for the lower court to revisit this ruling, so when Cablevision will actually be able to roll out the nDVR service is totally unknown. They must wait for the lower court to decide if they agree with the upper court's decision, which is not expected before the end of 2008. And of course we expect the studios and content providers to file subsequent appeals.
WHERE DO OTHER OPERATORS STAND?
If Cablevision wins, other cable and telco network operators will implement nDVR too. For example, Time Warner Cable's CEO Glenn Britt told Multichannel News on August 6th, "We've said for a long time that a centralized network DVR is a better engineering solution than having hard drives all over everybody's home. If this particular court case is upheld, we will deploy that."
AND THE BROADBAND IMPLICATIONS?
Should the ruling stand, a company like TiVo could possibly be able to capitalize on it by delivering the nDVR experience over broadband. Of course, TiVo's been shifting its model to work with service providers anyway, so this may not be a strategy it would pursue.
As for other broadband implications, this is where the interplay between nDVR, VOD and broadband video can get murky. For instance, sites like Hulu and ABC.com are already storing programs in the network (albeit in a way that they control) for on-demand consumption. This obviates the requirement that the consumer take the action to record say the latest episode of "The Office" in a DVR or nDVR environment.
And of course, the content providers control the ad insertion (although presumably they could do that for nDVR as well). Other than making ALL TV programs available vs. just the subset currently available for broadband delivery (and VOD) and the fact that nDVR can be viewed easily on TVs, which is not currently the case for broadband, the differences between nDVR and broadband start to feel quite blurry.
As you can see, nDVR has lots of implications for everyone in the video value chain.
Bottom line: Much more to come. Stay tuned.
thePlatform, the video management/publishing company that's been a part of Comcast since early '06, had a very good day yesterday. First it jointly announced with Time Warner Cable a deal to power the #2 cable operator's Road Runner portal. And the Wall Street Journal ran a story stating that it has also signed deals with the cable industry's #3 player Cox Communications and #5 player, Cablevision Systems, which thePlatform corroborates.
Netting all this out, thePlatform will now power 4 of the top 5 cable industry's broadband portals (all except Charter Communications), with a total reach exceeding 28 million broadband homes, according to data collected by Leichtman Research Group. That also equals approximately 44% of all broadband homes in the U.S. And it's a fair bet that thePlatform's industry penetration will further grow.
I caught up with Ian Blaine, thePlatform's CEO yesterday to learn a little more about the deals and whether the industry's semi-standardization around one broadband video management platform harkens a serious, and I'd argue overdue, industry push into broadband video delivery.
Ian noted that of its various customer deals, the ones with distributors like these are particularly valuable because of their potential for "network effects." This concept means that content and application providers are more likely to also adopt thePlatform if their key distributors are already using it themselves. Ian's point is very valid, as I constantly hear from content providers about the costs of complexity in dealing with multiple distributors and their varying management platforms. Yet the potential is only realized if the distributors actually build out and promote their services, offering sizable audiences to would-be content partners.
This of course has been the aching issue in the cable industry. While they've had their portal plays for years, they've been eclipsed in the hearts and minds of users by upstarts ranging from YouTube to Hulu to Metacafe to countless others, each now drawing millions of visitors each month. While solidly utilitarian, cable's portals (with the possible exception of Comcast's Fancast) are not generally regarded as go-to places for high-quality, or even UGC video. That's been a real missed opportunity.
Ian thinks the industry is experiencing an awakening of sorts, now recognizing the massive potential it's sitting on. This includes its content relationships, network ownership and huge customer reach. Of course, all of this was plainly visible in 1998 as broadband was first taking off, yet here we are 10 years later, and it somehow seems discordant to think the industry is only now grasping its strategic strengths.
Some would explain this as the cable industry being more of a "fast follower" than a true pioneer, a posture that has helped the industry avoid hyped-up and costly opportunities others have chased to their early graves. Others would offer a less charitable explanation: the industry's executives have either been asleep at the switch, overly focused on defending traditional closed video models against open broadband's incursion, or both.
In truth, and as I've mentioned repeatedly, the broadband video industry is still very early in its development, making a "fast follower" strategy still quite viable. Semi-standardization on thePlatform gives the industry a huge potential advantage in attracting content providers. It also gives the industry a more streamlined mechanism for bridging broadband video over to the TV, an area of intense interest now being pursued by juggernauts including Microsoft, Apple, Sony, Panasonic and others.
Still, cable operators' broadband video delivery potential (and the true upside of thePlatform's omnipresence) rests more on whether cable operators are finally going to embrace broadband as an eventual complement, and possibly even successor to their traditional video business model. That would be a major leap for an industry better known for cautious, incremental steps. Time will tell how this plays out.
What do you think? Post a comment!
To the disappointment of many, it looks like there won't be any big news about the cable industry's "Project Canoe" at the Cable Show convention in New Orleans this week.
Project Canoe is a high-profile partnership among the nation's six largest cable companies (Comcast, Time Warner Cable, Cablevision, Cox Communications, Charter Communications and Bright House Networks) to enable national interactive advertising campaigns to be executed across the companies' cable operations. The code-name Canoe is meant to emphasize that cable operators are working together in the same boat, so to speak.
For the past nine months, the partners' Canoe leads have been meeting weekly. Once a top secret initiative, Canoe's existence was leaked in a September, 2007 Wall Street Journal article. But since then there has been no new information, leading to speculation about how much progress has been made.
Yet Canoe remains a top priority throughout the industry, and for good reason. With big advertisers like GM and Intel shifting their once big-budgeted TV ad campaigns to the Internet in significant sums, it's key that the cable operators need to figure out a way to not only protect the $5 billion or so that they generate in spot-cable advertising today, but also to increase their piece of the $70 billion dollar TV ad spend or cut into other slices of the massive US total ad spend pie. The next 3-5 years will be critical as cable advertising, the Internet and broadband video jostle for advertisers' affections.
The buzz in New Orleans suggests advertisers and agencies are excited about Canoe, though its development seems slower than they prefer. Why the slow progress that's perceived? Several operators stated that integrating the infrastructure required to execute Canoe with cable's legacy systems is hard stuff. No doubt. Then of course there are other key priorities weighing on the industry resources, such as the February 2009 digital transition.
Meanwhile, the Internet and broadband video advertising continue steaming ahead, giving advertisers and their agencies the measurement and targetability that they yearn for on TV. Cable operators have been stymied in their ability to jointly offer advertisers easy access to a nationwide or near-nationwide footprint, especially critical for Video on Demand. Canoe addresses this and other opportunities, in part by creating a set of standards for all to follow.
The only Canoe "news" at this week's Cable Show came from Comcast's Steve Burke, who stated that a CEO would be announced on June 1. Comcast is a key player in Canoe, funding between $50-70 million of the $150 million initial investment. Rumors have swirled that David Verklin, who recently stepped down as CEO of Aegis North America (a large advertising services firm) will assume the position of CEO. If true, that could be the news to break on June 1.
For those of us who have been around the interactive advertising and TV mulberry bush for many years, Canoe's potential is exciting. But we're hoping that the Canoe gets it in gear. Paddle on, gang.
What do you think of Project Canoe's prospects? Post a comment now!