VideoNuze Posts

Following my 2 posts late last week (here and here) about how Netflix's new deal with Warner Bros is win for everyone, the NYTimes has posted a terrific interactive map showing the top rentals in 12 geographic areas of the U.S., sorted by zip code. The map is based on data that Netflix provided to the NYTimes. Playing around with the map, you'll quickly hunger for more details, but you'll also get a sense of the mountain of viewership data Netflix maintains on its 11 million+ subscribers. This data, when combined with the Netflix's algorithms for predicting its users' preferences, further demonstrates how valuable a deal like the one with WB could be for Netflix as it emphasizes streaming.

In the digital era, data is king because when used properly, it can dramatically improve the quality of the product delivered, in turn driving user satisfaction and profitability. Netflix has always used data very effectively; examples include how it has chosen sites for its distribution centers so that most Americans are within 1 day's delivery, or how it has recommended other titles based on yours and others' preferences, or how much inventory of newly-released DVDs it decides to build. Now, as Netflix shifts its business from physical to digital delivery, it has another big opportunity to leverage the data it has collected from its users.

While a lot of attention was focused last week on the new 28-day "DVD window" which precludes Netflix from renting recently-released WB titles, I believe more attention should be paid instead to how effectively Netflix will be able to use its trove of data to selectively tap into WB's catalog of titles to boost its streaming selection. Using the data it has collected on physical rentals and search queries, for example, Netflix should be able to literally request title-by-title streaming rights from WB. That's not to say Netflix will necessarily receive access to those particular titles, but by being able to focus its requests, Netflix avoids wasting energy asking for things that are unlikely to have much appeal to its users.

It's unclear whether Netflix will conclude similar deals with other Hollywood studios. If it can't then the above-described benefits will be limited. In fact, as a couple of people pointed out to me last week, with Hollywood also highly dependent on cable, it's not readily apparent that helping Netflix build its streaming selection is actually in their interest as TV Everywhere services continue to roll out. WB is actually an interesting example; on the one hand, Time Warner's CEO Jeff Bewkes has been the strongest proponent of TV Everywhere, but on the other hand, WB's deal with Netflix creates more competition for it. In short, Hollywood will have its hands full trying to recast its distribution strategy in the digital era.

DVDs are not going away overnight, but the user data Netflix has will be an enormously valuable tool in helping transition its business to digital delivery and add more value to its subscribers. As long as Netflix complies with its users' privacy expectations, that gives it a big strategic advantage.

What do you think? Post a comment now.

The 2010 Consumer Electronics Show (CES) is now behind us. There were tons of announcements to come out of this year's show, including many in the online and mobile video areas. Increasingly a core focus of new devices is how to playback online and mobile-delivered video, how to move it around the consumer's house and how to make it portable. Following is a filtered list of the product announcements (or pertinent media coverage if no release was available) that I found noteworthy. They are listed in no particular order and I'm sure I've missed some important ones - if so, please add a comment with the relevant link.

DISH Network Partners with NeuLion to Distribute Live International TV Channels Through IPTV Platform

Boxee box internals revealed. NVIDIA Tegra 2 FTW

Netgear Collaborates with Intel to Launch TV Adapter for Intel Wireless Display, an Intuitive and Easy Way to View Entire Laptop Screen on HDTV Wirelessly

Syabas Announces Popbox for Big Screen Everything

Sling Media Announces Support for Adobe Flash Platform in Hardware and Software Products

LG Electronics Expands Access to Content-on-Demand with New High-Performance Blu-ray Disc Players

ESPN 3D to show soccer, football, more

Discovery Communications, Sony and IMAX Announce Plan to Launch First 24/7 Dedicated 3D Television Network in the U.S.

TV Makers ready to test depths of market for 3D

DirecTV is the First TV Provider to Launch 3D

DISH Network Introduces TV Everywhere

Microsoft Unites Software and Cloud Services to Power New TV Experiences

FLO TV and mophie to Bring Live Mobile TV to the Apple iPhone and iPod Touch

Broadcom Drives the Transition to Connected Consumer Electronics at 2010 International CES

New NVIDIA Tegra Processor Powers the Tablet Revolution

Digital Entertainment Content Ecosystem (DECE) Announces Key Milestones

Disney offers KeyChest, but where is the KeyMaster?

DivX Launches New Internet TV Platform to Redefine the Future of Entertainment

Cisco Eos Social Entertainment Platform Expands Footprint with New Customers, Feature; Introduces Partner Ecosystem

Blockbuster, ActiveVideo Announce Agreement for Cloud-based Online Navigation

Brightcove Expands Online Video Distribution to Millions of Internet-Connected Televisions with Yahoo TV Widgets

Skype Ushers in New Era in Face-to-Face Online Video Communication

Rovi Grows Content Providers List to Include More Movies and TV Shows in its Next-Generation Media Guide

Following are 4 items worth noting for the Jan 4th week:

1. TechCrunch disagrees with my Netflix-Warner Bros. deal analysis - In "Netflix Stabs Us In The Heart So Hollywood Can Drink Our Blood," (great title btw) MG Siegler at the influential blog TechCrunch excerpts part of my post from yesterday, and takes the consumer's point of view, decrying the new 28 day "DVD window" that Netflix has agreed to in its Warner Bros deal. Siegler's main objection is that "Hollywood thinks that with this new 28-day DVD window deal, the masses are going to rush out and buy DVDs in droves again." Instead, Siegler believes the deal hurts consumers and is going to touch off new, widespread piracy.

I think Siegler is wrong on both counts, and many of TechCrunch's readers commenting on the post do as well. First, nobody in Hollywood believes DVD sales are going to spike because of deals like this. However, they do believe that any little bit that can be done to preserve the appeal of DVD's initial sale window can only help DVD sales which are critical to Hollywood's economics. Everyone knows DVD is a dying business; the new window is intended to help it die more gracefully. And because new releases are not that critical to many Netflix users anyway, Netflix has in reality given up little, but presumably gotten a lot, with improved access for streaming and lower DVD purchase prices.

The argument about new, widespread piracy by Netflix users is specious. With or without the 28 day window, there will always be some people who don't respect copyright and think stealing is acceptable. But Netflix isn't running its business with pirates as their top priority. With 11 million subscribers and growing, Netflix is a mainstream-oriented business, and the vast majority of its users are not going to pirate movies - both because they don't know how to (and don't want to learn) and because they think it's wrong. Netflix knows this and is making a calculated long-term bet (correctly in my opinion) that enhancing its streaming catalog is priority #1.

2. comScore's November numbers show continued video growth - Not to be overlooked in all the CES-related news this week was comScore's report of November '09 online video usage, which set new records. Key highlights: total video viewed were almost 31 billion (double Jan '09's total of 14.8 billion), number of videos viewed/average viewer was 182 (up 80% from Jan '09's 101) and minutes watched/mo were approximately 740 (more than double Jan '09's total of 356).

Notably, with 12.2 billion views, YouTube's Nov '09 market share of 39.4% grew vs. its October share of 37.7%. As I've previously pointed out, YouTube has demonstrated amazingly consistent market dominance, with its share hovering around 40% since March '08. Hulu also notched another record month, with 924 million streams, putting it in 2nd place (albeit distantly) to YouTube. Still, Hulu had a blowout year, nearly quadrupling its viewership (up from Jan '09's 250 million views). But with 44 million visitors, Hulu's traffic was pretty close to March '09's 41.6 million. In '10 I'm looking to see what Hulu's going to do to break out of the 40-45 million users/mo band it was in for much of '09.

3. Consumer groups protest TV Everywhere, but their arguments ring hollow - I was intrigued by a joint letter that 4 consumer advocacy groups sent to the Justice Department on Monday, urging it to investigate "potentially unlawful conduct by MVPDs (Multichannel Video Programming Distributors) offering TV Everywhere services." The letter asserts that MVPDs may have colluded in violation of antitrust laws.

I'm not a lawyer and so I'm in no position to judge whether any actions alleged to have taken place by MVPDs violated any antitrust laws. Regardless though, the letter from these groups demonstrates that they are missing a fundamental benefit of TV Everywhere - to provide online access to cable TV programming that has not been available to date because there hasn't been an economical model for doing so. In the eyes of people who think that making money is evil, the TV Everywhere model of requiring consumers to first subscribe to a multichannel video service seems anti-consumer and anti-competitive. But to people trying to make a living creating quality TV programming, the preservation of a highly functional business model is essential.

These advocacy groups need to remember that consumers have a choice; if they don't value cable's programming enough to pay for it, then they can instead just watch free broadcast programs.

4. 3D is the rage at CES - I'll be doing a CES recap on Monday, but one of the key themes of the show has been 3D. There were two big announcements of new 3D channels, from ESPN and Discovery/Sony/IMAX. LG, Panasonic, Samsung and Sony announced new 3D TVs. And DirecTV announced that it would launch 3 new 3D channels by June 2010, with Panasonic as the presenting sponsor. 3D sets will be an expensive proposition for consumers for some time, but prices will of course come down over time.

Something that I wonder about is what impact will 3D have on online and mobile video? Will this spur innovation in computer monitors so that the 3D experience can be experienced online as well? And how about mobile - will we soon be slipping on 3D glasses while looking at our iPhones and Android phones? It may seem like a ridiculous idea, but it's not out of the realm of possibility.

Enjoy your weekend!

Daisy Whitney and I are pleased to present the first VideoNuze Report podcast of 2010 (and the 45th edition overall!).

In today's podcast we first discuss my post from yesterday, "Why Netflix's Long-Term Focus in New Warner Bros. Deal is a Win for Everyone," in which I assert that the new 28 day "DVD window" that the deal creates helps Netflix, Hollywood studios and ultimately consumers. There is a lot of consternation in the blogosphere and Twittersphere about whether Netflix is hosing its subscribers with this new policy, but I believe there's actually little risk of that, and the payoff for Netflix is better content for its streaming catalog as well as lower costs for its DVD purchases. While WB surely doesn't expect to sell more DVDs due to the deal, it can only help make the DVD model's demise a little less disruptive.

Switching gears, Daisy then reviews some of eMarketer's predictions for ad spending in 2010, with particular focus on online video advertising, which eMarketer expects to grow from about $1 billion in '09 to $1.4 billion in '10. Listen in to find out more.

Click here to listen to the podcast (12 minutes, 30 seconds)

Click here for previous podcasts

The VideoNuze Report is available in iTunes...subscribe today!

Netflix's new deal with Warner Bros., in which it agreed to a 28 day "DVD window" for new releases, in exchange for greater access to WB's films for its Watch Instantly streaming feature and reduced pricing on its own DVD purchases, is further proof that Netflix is squarely focused on the long-term. That's not only smart for Netflix, it's also a win for Hollywood studios and also for consumers.

With 11 million subscribers and growing, Netflix has emerged as one of Hollywood's most important home video customers. This dynamic has only increased recently due to slowing sales of DVDs (down another 13% in 2009) and Netflix's dominance in DVD rentals. Yet Netflix is viewed warily by Hollywood, primarily due to concerns that in the digital age, Netflix could gain too much power over Hollywood's fate. This concern was reinforced by Netflix's deal with premium cable channel Starz, a de facto end-run around Hollywood in which Netflix got streaming access to certain Disney, Sony and Lionsgate films.

As I've pointed out many times (as recently as this past Monday, in item #6), despite the Starz deal and the impressive adoption of Watch Instantly to date, Netflix faces a major challenge in building out its catalog of recent films for streaming use. Part of the challenge is Hollywood's "windowing" approach; in particular, other premium channels like HBO, Showtime and Epix have made significant financial commitments for electronic distribution during certain time periods that effectively preclude Netflix gaining streaming rights. Because much of Netflix's value proposition relies on its vast DVD selection (100K+ titles currently), if its streaming catalog continues to look meager by comparison, then Netflix's goal of migrating its users to streaming delivery over time will be seriously undermined.

That's where the new WB deal comes in. While the companies didn't disclose which titles or how many would be available, my guess is that the benefits of the deal, when it's fully implemented, will be noticeable to Netflix's subscribers or Netflix wouldn't have signed on. While WB is just one studio, if the new deal can be used as a template, Netflix could have a solid plan for gaining more films without paying big bucks. And the studios would get greater leverage against Redbox, which is viewed with even greater alarm by much of Hollywood.

Netflix's focus on the long term is smart strategy, and complements well the company's near-term emphasis on riding the convergence wave by embedding its Watch Instantly software in every conceivable living room device (e.g. PS3, Xbox, Roku, Bravia, Blu-ray players, etc.). It's also a strategy that benefits Hollywood. By creating a situation where studios preserve as much of their DVD sales as possible (allegedly 75% of a film's total DVD sales occur in the first 4 weeks following release), Netflix is helping Hollywood gracefully wind down and milk the DVD business.

Not surprisingly, consumers' first reaction to the deal was sour. Yesterday the Twittersphere was alight with grousing about the 28 day DVD window and how Netflix was "selling out its customers." Some even talked about canceling their Netflix service. I think most of this is idle chatter. Netflix has publicly said that just 30% of its DVD rentals come from recent releases (though it is likely that for Netflix's heaviest DVD renters, recent releases are far more important). In the end, Netflix is making a calculated bet that it can manage the potential subscriber consequences of creating the DVD window in order to benefit its larger goal of migrating its business to online delivery.

If Netflix is right, and it can sign on additional studios to similar deals, then ultimately consumers will win. That's because, as Netflix proves in the value of streaming, it will be able to offer improved terms to studios, resulting in Netflix getting better and better access to films. But this will be a gradual process that unfolds over time. Whereas consumers always "want everything yesterday," the reality is that if Hollywood and Netflix can avoid disruption and instead preserve most of their economics by gracefully transitioning their businesses to digital delivery, consumers stand a better chance of continuing to receive the kind of premium-quality (i.e. expensive to produce) films they value. The demise of the newspaper industry is a cautionary example of what happens when disruption instead prevails and an industry's traditional economics are destroyed.

We are still on the front end of seismic shifts that will alter how Hollywood's films are distributed to consumers. By focusing on the long-term, as evidenced by its WB deal, Netflix is playing an important role in increasing the odds of a successful transition.

What do you think? Post a comment now.

Google and Apple both unveiled key mobile initiatives yesterday, underscoring the collision path the two companies are on, and how long-term, video is poised to benefit from their battle.

First, as you no doubt already know, Google introduced the Nexus One, an Android-powered smartphone that it is selling directly to consumers. It is Google's first foray into consumer devices and many more products sure to follow. Meanwhile, Apple, in a rare significantly-sized deal, acquired Quattro Wireless, a mobile advertising company, for around $300 million. Quattro represents Apple's first real push into advertising, an important shift from its traditional iTunes-driven paid media model.

With its own device, Google is primarily looking to compete against Apple's iPhone, which has practically owned the U.S. smartphone market since its introduction 2 years ago. And Apple, with a toehold in the exploding mobile advertising market, is positioning itself to disrupt Google's planned dominance of mobile advertising through its pending $750 million AdMob acquisition. If Apple were to make additional acquisitions, particularly in the online video advertising space, that would further strengthen its position.

Mobile video is poised to be a real winner in the Google vs. Apple face-off. At a minimum, the two companies' considerable marketing spending (plus those of competitors Palm, RIM, Nokia and others) will mean smartphones in millions more consumers' hands, dramatically expanding the video-ready universe. In addition, the experience of watching mobile video will just keep getting better. For example, the Nexus One's screen resolution (480x800) surpasses the iPhone's (320x480), which only means Apple will need to up the ante even further with its next generation. The range of video applications is sure to surge as more and more players stake out their ground.

Importantly, because there are no powerful incumbent distributors in mobile video - as there are in the living room, with cable/satellite/telco - I believe there is more flexibility in how premium video can be distributed to smartphones. Until recently mobile was an "on-deck" world where everything had to be approved and carried by the wireless carrier. But mobile is quickly evolving to take on open Internet-like characteristics, where applications and services are not gatekeeped by a distributor. In short, mobile looks to be more like online distribution than traditional video distribution. As power in mobile shifts to players like Apple and Google, it should also be a wake-up call to the FCC, whose planned wireless carrier-focused net neutrality paradigm already looks out of date.

While there have been recent rumbles about Apple doing something with subscription video for the living room, instead the company likely has more latitude in mobile to go well beyond the pay-per-use iTunes model, especially if it can also bring in advertising. Meanwhile, by having its own device and operating system, Google is optimizing the YouTube mobile experience. As this YouTube blog post points out, the Nexus One is an improved way to search, view and upload YouTube videos. With YouTube enjoying such benefits not just on Nexus One, but on all Android phones, YouTube becomes an even more valuable partner for premium content providers looking to generate mobile usage.

Google and Apple will be jousting for years to come in the mobile space. The opportunities for growth for both companies are sizable. I fully expect that video is a going to be an increasingly important part of the battle.

What do you think? Post a comment now.

Brightcove has appointed David Mendels as president and COO, a new executive position at the company.

Mendels has been on Brightcove's board of directors since late 2008 and for the last several months has been its acting head of sales. He was most recently the EVP and GM of Adobe's $1 billion enterprise software and business productivity division which includes Acrobat, Connect, LiveCycle and Flex. Prior, he was an early employee and spent many years at Macromedia, where he helped the company expand internationally, ran business development and alliances and managed a number of the company's key products.

Mendels and Jeremy Allaire, Brightcove's founder, Chairman and CEO, briefed me over the holidays on the appointment. The two worked together following Macromedia's acquisition of Allaire back in 2001. From Jeremy's perspective, bringing on Mendels won't prompt any radical changes. Rather, the goal is to strengthen the company operationally and help it scale to capture opportunities both see in its 3 target markets: core media, non-media (i.e. business, government and education, which Jeremy said already account for over half the company's revenues) and small organizations (which Brightcove is pursuing with its recently launched Express product). Both also envision Mendels further globalizing Brightcove's business and also building out its channel sales efforts.

The two believe that a continuing preference by many organizations to build vs. buy is Brightcove's biggest source of competition, though they see this starting to soften as video becomes more integral to customers' overall operations. Both are also very mindful of the plethora of other online video platforms in the market, as well as new startups that continue to spring up. As Jeremy and other Brightcove executive have told me in the past, the company believes it distinguishes itself from others not only on the basis of its platform, but also by its breadth of offerings, international presence and simultaneous pursuit of numerous market segments.

Brightcove is indeed well-positioned, though as I pointed out recently, I don't foresee there being any single, truly dominant provider in the video platform market any time soon. It is still relatively early days in the industry and there will be lots of competitors. I continue to believe that the best way for prospective customers to determine which provider meets their own particular requirements is to intensively demo various products and see how they each perform.

However, as the market inevitably matures, requirements converge and video becomes more mission critical, video platform providers' ability to effectively scale all aspects of their operations is going to become an increasingly important differentiator. In this respect, Mendels' Macromedia and Adobe experience is going to be extremely valuable to Brightcove's ongoing success.

What do you think? Post a comment now.

(note: Brightcove is a VideoNuze sponsor)

Happy New Year. If you're just back from a holiday vacation and have been partially or totally off the grid for the last week or two, here are 7 video-oriented items you may have missed:

1. Time Warner Cable and News Corp fight over fees, then settle - Two behemoths of the cable and broadcast TV ecosystem spatted publicly during the holidays over the size of "retransmission consent" fees that News Corp (owner of the Fox Broadcast Network and cable channels like Fox News) wanted TWC (the 2nd largest U.S. cable operator) to pay to carry its 14 local stations. While a last minute deal averted the channels going dark, broadcasters' interest in dipping into cable's monthly subscription revenues will only intensify as audience fragmentation accelerates and ad revenues are pressured.

For my part I wish Fox and other broadcasters were as focused on building new and profitable digital delivery models for their programs as they were on trying to redistribute cable's revenues. Even as Rupert Murdoch continues advocating the paid content model, the freely-available Hulu is seeing its traffic skyrocket (see below). But if Hulu's viewership isn't incrementally profitable, then all that growth is pointless. Urgency is mounting too; in '10 convergence devices that bridge broadband to the TV are going to get a lot of attention. In the wake of their adoption, consumers are going to want Hulu on their TVs. If Hulu doesn't allow this it will be marginalized. But if it does without first solidifying its business model, it could hurt broadcasters further.

2. Hulu has a big traffic year, but no further information provided on its business model - Hulu's CEO Jason Kilar pulled back the curtain a bit on the company's strong progress in 2009, citing 95% growth in monthly users, to 43 million, 307% growth in monthly streams, to 924 million (both as measured by comScore) and a doubling of available content, to 14,000 hours. While noting that its advertisers increased from 166 to 408 during the year, with respect to performance, Jason only said that "we are extremely excited about atypically strong results we have been able to drive for our marketing partners."

Though Hulu is under no obligation to disclose details of its business model, I think it would dramatically increase the company's credibility if it shared some metrics about how its lighter ad load model is working (e.g. improved awareness, click throughs, leads, conversions, etc.). Per the 1st item above, as Hulu grows, a lot of people have a lot at stake in understanding what effect it may have on broadcast economics. In addition, as I pointed out recently, it is important to understand whether Hulu thinks it may have already saturated its U.S. audience. After a jump in Q1 '09 from 24.6 million to 41.6 million users, traffic actually dipped below 40 million until October. What does Hulu do from here to gain significantly more users?

3. Cable networks' primetime audience is nearly double broadcasters' - Punctuating the ascendancy of cable over broadcast, this Multichannel News article pointed out that in 2009, ad-supported cable networks as a group captured 60.7% of primetime audience vs. 32% for the 4 broadcast networks. That's a major change from 2000 when the broadcasters had a 46.8% share vs. cable's 41.2%. Cable increased its share every single year of the last decade, powered by its innovative original programming. NBCU's USA Network in particular has become the real standout performer, winning its second consecutive ratings crown, with 3.2 million average primetime viewers, up 14% vs. 2008.

The surging popularity of cable programming is a crucial barrier to consumers cutting the cord on cable. Since cable networks are highly invested in the monthly multichannel subscription model, they are unlikely to disrupt themselves by offering their best shows to others under substantially different terms than how they're offered today. So to the extent cable programs are either unavailable to over-the-top alternatives or offered less attractively (e.g. less choice, higher cost, delayed availability), little cord-cutting can be expected. And if TV Everywhere achieves its online access goals, the cable ecosystem will only be further strengthened.

4. YouTube is working to drive higher viewership - Amidst the turmoil in the traditional ecosystem and Hulu's growth, YouTube, the 800 pound gorilla of the online video world, is working hard to deepen the site's viewership. As this insightful NYTimes article explains, a team of YouTube developers is analyzing viewing patterns and tweaking its recommendation practices to encourage more usage. YouTube says time on the site has increased by 50% in the last year, and comScore reports that the average number of clips viewed per user per month jumped to 83 in October, up from 53 a year earlier. Still, as comScore also reports, duration of an average session has yet to crack 4 minutes, meaning video snacking on YouTube is still the norm. YouTube's moves must be watched closely in '10.

5. Showtime's "Weeds" available online before on DVD - This WSJ article (reg req'd) pointed out that Lionsgate, producer of Showtime's hit "Weeds" series is offering episodes online before they're available on DVD. By putting the digital "window" ahead of DVD's, Lionsgate is further pressuring DVD's appeal. We've seen periodic experimentation in this regard, and I anticipate more to come, especially as the universe of convergence devices expands and consumers can watch on their TVs instead of just their computers. Until a tipping point occurs though, "Weeds" like initiatives will be the exception, not the rule.

6. Netflix goes shopping in Hollywood - And speaking of reversing distribution windows, this Bloomberg Businessweek piece was the latest to highlight Netflix's efforts to woo studios into giving it more recent releases. Netflix has of course made huge progress with its Watch Instantly streaming feature, but its appeal to heaviest users will slow at some point unless it can dramatically expand its current slate of 17K titles available online. Hollywood is understandably wary of Netflix given all the variables in play and a desire to avoid Netflix becoming master of Hollywood's post-DVD, digital future. Whether Netflix will spend heavily to obtain better rights is a major question.

7. Get ready for Google's Nexus One and Apple's "iSlate" - Unless you've really been off the grid, you're probably aware by now that two very significant mobile product releases are coming this month. Tomorrow (likely) Google will unveil the Nexus One, its own smartphone, powered by its Android 2.1 operating system. The Nexus One will be "unlocked," meaning it can operate on multiple providers using GSM networks. The device will further fuel the mobile Internet, and mobile video consumption along with it. Separately, Apple is widely rumored to introduce its tablet computer later in the month, which many believe will be called the "iSlate." The tablet market is completely virgin territory, and while it's early to make predictions, I believe Apple could have most of the ingredients needed to make the product another big hit. The prospect of watching high-quality video on a thin, light, user-friendly device is extremely compelling.