VideoNuze Posts

Yesterday's post, "Broadcast Networks' Use of Broadband Video is Accelerating Demise of their Business Model" spurred some great comments on the site, and as usual, a flurry of private emails to me from folks who don't want to comment publicly (this is a recurring VideoNuze phenomenon I've mentioned before...).

Since there's substantial interest in this topic and I thought some of my comments from yesterday needed some clarification, I want to dig in a little further today.

First I want to address the numbers I outlined, especially the benchmark of $1 of ad revenue per viewer per episode that I asserted NBC derives from "Heroes" on-air. I've had some push back that this number is too high and that it more likely is 50-75 cents/viewer/episode. As I refined my assumptions further, I do think I was probably a bit too optimistic, particularly regarding the actual number of ad units NBC sells. I do think all of these numbers are somewhere in the ballpark, but what they actually are on a show-by-show basis is obviously only known only to NBC itself.

That all said, the gap between today's "analog dollars" and the revenue being derived from online distribution (the so-called "digital pennies") may still be pretty close to what I suggested yesterday. That's because I also had push back on my assumption that Hulu is generating an effective CPM of $60 (note, I had characterized that as "generous"). According to some folks, it's possible their eCPM could in fact be closer to $30 - or less. This is all private data, so again, it's really hard to pin this down.

One point I'd like to make again, so nobody's left with any misimpressions: I don't believe networks have been wrong in pursuing online distribution of their shows. I applaud their proactivity. Rather, my problem is that I think the way they've chose to monetize broadband delivery - with such a paucity of ads - is not only under-monetizing and undervaluing their product, but also creating a set of consumer expectations about the online medium that are going to be hard to reverse.

For Hulu to put the equivalent of 1 1/2 minutes of advertising against "Heroes," when NBC can command premium on-air rates for about 20 minutes of ads, strikes me as seriously out of whack. At the risk of sounding anti-consumer, I think Hulu is hurting its parent company's financial interests by over-emphasizing its user experience. The consequences of Hulu's "limited commercial interruptions" policy are really the thesis of yesterday's post: I believe the networks own use of broadband is accelerating the demise of their traditional ad model.

To be clear, I'm not suggesting Heroes on Hulu should carry 20 minutes of ads, but I do think it can carry more than 1 1/2 minutes. As important, its ad model needs to quickly evolve to include better targeting, more engagement, more creative units, etc, to break from a purely CPM-based paradigm. I know that many folks are hard at work on these items.

Net, net, these are incredibly complicated times for networks. As the Portfolio piece says, NBC's Zucker is "unsparingly harsh about the prospects for broadcast television..." And NBC's issues don't end with broadband; as commenters to yesterday's post noted, it's also being buffeted by the effects of DVRs, VOD and fragmentation driven by social networks, mobile and other shifting consumer behaviors.

I love Zucker's sense of honesty and urgency about the network business. I thought NBC's hardheaded approach to obtaining variable pricing from iTunes was terrific. And as many of you know, I think Hulu's site execution has been world-class. But Hulu, NBC, and the other networks must recognize that their current approach to ad-supported broadband delivery is undervaluing their own product and hastening the demise of their traditional P&L.

What do you think? Post a comment now!

Last weekend I finally got a chance to read "Zuckervision," the splashy cover page piece about NBCU's CEO and president Jeff Zucker in the September issue of Conde Nast's Portfolio magazine. It's a pretty candid expose of the challenges that Zucker faces turning around the flagship NBC brand. More broadly though, it describes the challenges that all network executives have in trying to profitably navigate the digital era.

Zucker says, "Predicting what the media world is gonna look like in eight years is incredibly daunting. I defy anybody to that." He's right, and I'm not going to take him up on his offer. What's more salient though is to focus on the here and now - on what networks are doing with ad-supported broadband distribution today. From this perspective I think it's fair to conclude that broadcast networks' current use of broadband is accelerating the demise of their business model.

That's right. For all of Zucker's and his compatriots' lament about "analog dollars being turned into digital pennies," as best I can tell, the networks themselves are actually the ones most responsible for turning this fear into a reality. I touched on this in a previous post, but here are the numbers explaining why.

When each of us, watches an episode of NBC's "Heroes," for example, on-air, NBC generates approximately $1.00 of advertising revenue (assuming NBC sells 75% of the 22 minutes of ads at a CPM of $30). That $1/viewer/episode figure obviously varies by program, but it's a good benchmark to use. (Note: per the following post, I think these assumptions are a little high, a more accurate range for NBC's revenue/viewer/episode is probably $.50 - $1.00.)

Now consider what happens when we watch "Heroes" on Hulu, NBC and Fox's well-respected aggregator. There are 5 ad breaks with just one 15 second ad in each break. There's also a 7 second "brand slate" at the beginning of each episode ("The following program is brought to you by....") and a display ad at the conclusion. Rounding up, let's say that totals three 30 second ads. Assuming Hulu sells all the ads at a generous $60 CPM (note that's 2x the on-air rate), the revenue/viewer/episode is 18 cents. That means that when you watch Heroes on Hulu, NBC is generating less than 20% of its customary revenue (hence the "digital pennies" fear).

Hulu's ad implementation is not unique - if you look at the other network sites, their ad models are roughly comparable. I don't know who came up with this ad approach, but I would contend that in their zeal to move prime time programs online, the networks have all gone too far in emphasizing a user-friendly experience over sound business discipline.

Of course, as consumers this new ad model is great. We get high-quality, free content at our fingertips, with minimal interruptions. For the vast majority of consumers, this value proposition beats buying and downloading an episode at iTunes any day (all the more so as popular shows like Heroes are bound to cost even more under NBC's new variable pricing relationship with Apple).

With the current model, NBC needs for Hulu to get more 5x its current CPM (which would be more than 10x NBC's current on-air CPM) just to stay even with its traditional ad model. That's a pipe dream. It doesn't matter how much interactivity or exclusivity Hulu can give an advertiser (and by the way Nissan already had full exclusivity in the Heroes episode I watched) no advertiser is going to pay 10x on-air rates. Simply put, Hulu's and others' minimal quantity of ads cannot be compensated for using higher prices.

Now that the genie is out of the bottle with the networks' online ad model, it's going to be awfully hard to make major modifications to it. As eyeballs inexorably shift from on-air to online, NBC and the other networks' top line ad revenues is going to get pinched. Also poised to bear the brunt is the whole Hollywood community accustomed to benefiting from on-air economics (Zucker's aggressive attempts to reduce expenses are also discussed in the Portfolio piece).

Bottom line: the way NBC and other networks have implemented broadband accelerates the vast change that is buffeting the broadcast business.

What do you think? Post a comment!

As I alluded a week ago, today I'm very pleased to share details of VideoNuze's first Broadband Video Leadership Breakfast Panel.

The session will be held on November 10th, in Boston, and is entitled, "How to Profit from Broadband Video's Disruptive Impact." It is being held on the first full day of the annual CTAM Summit, so if you're coming to town for that event, I hope you'll be able to carve out time to attend the leadership breakfast.

The panel features an A-list group of executives, whose companies are at the forefront of the broadband revolution:

• Deanna Brown - President, SN Digital, Scripps Networks
• Bill Carr - Vice President, Digital Media, Amazon
• David Eun - Vice President, Content Partnerships, Google/YouTube
• Herb Scannell - Chairman/Co-Founder, Next New Networks and former Vice Chairman, MTV Networks and President, Nickelodeon Networks
• Peter Stern - Executive Vice President, Strategy and Product Management, Time Warner Cable

Click here to register for the early bird special

I recruited this diverse group specifically to ensure a range of perspectives (established vs. early stage, content vs. distributor, ad supported vs. paid, etc.) are represented. It will be invaluable for attendees to hear the pros and cons of varying broadband video strategies, as well as the current data supporting these approaches. Having moderated dozens of panels over the years, I'm focused on bringing together best practices I've observed to ensure this is a well-structured, high-impact discussion.

Among other things, I expect attendees will learn about the tradeoffs of different business models, how consumers' video behaviors are changing, what these five companies' broadband priorities are and what roles upstart content providers and aggregators will play in the future. The most important takeaway will be what you, as participants in the broadband market, can be doing now to ensure your future success.

The breakfast panel is generously sponsored by ActiveVideo Networks, Akamai, Anystream, KickApps and Yahoo and is being run in association with CTAM's New England and New York chapters, on whose boards I serve.

Click here to register for the early bird special

I'm incredibly excited about the leadership breakfast, as it marks a continued push by VideoNuze into the events space, a key priority going into 2009. In fact, last night marked the kickoff of our events push, with the inaugural VideoSchmooze networking evening, which drew 200+ attendees on a rainy, Red Sox-at-home night (pictures are here). Look for more VideoSchmoozes in '09 as this networking event goes on the road.

Is it just me, or are you also noticing that the quality of your online video experience is getting consistently better and better? Even though I'm totally immersed in the space, periodically I will find myself watching something online and still think to myself, "This quality is just unreal!"

I've had the experience of watching some or all of the following recently: the Democratic convention on demconvention.com, the movie "Ordinary People" on Hulu, swimming on NBCOlympics.com, trailers on Fancast and "Eli Stone" on ABC.com, among others. In each case, the quality of the video is outstanding, even in full screen mode.

All of this is due to tremendous innovation in the content delivery world. This includes not only traditional CDNs such as Akamai, Limelight, Level 3, CDNetworks and others, but a raft of other players specifically focused on optimizing video delivery quality such as Move Networks, Swarmcast, Digital Fountain, Vusion, BitGravity and others. Further enhancing the experience are improvements in media players like Windows Media, Flash, QuickTime and more recently Silverlight.

The innovation and investment in this space shows no signs of abating. I was reminded of this just last week in a call with Perry Wu, CEO and co-founder of BitGravity, which yesterday announced a strategic relationship and investment from Tata Communications (part of Tata Group, the massive Indian conglomerate).

Perry explained that the underlying theme of the deal is to deliver video at consistently high quality on a global basis. That aspiration fits with the increasingly international-oriented distribution strategies I hear about from content providers. While fast-growing international markets have been core growth drivers for content companies, frictionless and cost-effective IP delivery is creating a whole new ball game. I expect international reach - and the ability to monetize with locally-appropriate advertising - to become more and more important.

Meanwhile, back in the U.S. surging video quality means the bar is getting higher for all video providers. Delivering video without a full-screen option, or where the audio and video aren't synched perfectly, or where rewind/instant play isn't available will soon be perceived as sub-par. For budget-minded broadband content startups this will require heavier investments in delivery services if they're to be taken seriously.

For traditional networks and the Hollywood community, higher quality broadband delivery means the shift from on-air to online consumption will only accelerate. As more consumers come to see broadband as a legitimate alternative, they'll continue modifying their behaviors. With these shifting eyeballs comes a slew of economic challenges (the "analog dollars to digital pennies" anxiety) that must be urgently addressed.

Lastly, for the owners of local broadband networks (cable operators, telcos, etc.) surging video quality increases the pressure on their networks' delivery capacity. When a handful of users are watching high-quality long-form video that's one thing. But what happens when it's the norm? Bandwidth management and net neutrality debates are sure to intensify.

While all of these uncertainties swirl, consumers are gleefully seeing a high-quality video Internet unfold that just a few years ago would have seemed unimaginable.

What do you think? Post a comment.

With the recent launch of the iPhone and other smartphones, mobile video delivery is receiving much greater attention. Though still lagging the widespread popularity of broadband-delivered video, mobile video is getting a boost today as MTV, Discovery, AccuWeather, Travel Channel and Next New Networks have all announced new initiatives, to be powered by Transpera, a mobile video services platform.

Mobile has long been an alluring opportunity, but to date most of the activity has been from wireless carriers or their partners' efforts. These so-called "on deck" video offerings were largely subscription-based (Verizon's VCast, MobiTV, etc.) and available on only a minority of all handsets. The limited, carrier-controlled nature of traditional mobile video has been a key differentiator from the open broadband video world.

Further, as Greg Clayman, MTV's EVP of Digital Business Development explained to me on Friday, neither the tools for content providers to manage, publish and monetize mobile video nor the network capacity for delivering mobile video have been in place until recently.

Transpera is one of a number of companies addressing the mobile video opportunity (see also my recent post on upstart Azuki Systems and also another player called Vantrix). I spoke to Transpera's CEO and co-founder Frank Barbieri a few weeks ago, and he noted that given how nascent the mobile video space is, the company is today providing both a full technology platform to content providers and ad sales capabilities. I pointed out that in broadband that integration of technology and ad sales had been tried (most notably by Brightcove), but largely been dropped. Today there is a clear bifurcation in the broadband ecosystem between technology platforms and ad sales networks.

Frank sees the same thing happening in mobile video (in fact, we agreed that comparisons to broadband's development are useful in thinking about how mobile video delivery will shape up). Transpera's longer-term goal is to be a full-fledged mobile ad sales network, so its management/publishing/delivery platform is more of a means to that end. Frank sees Transpera already providing real monetization value to many of its customers; the company has strong reach into media buyers and agencies and credibility in selling this new medium's benefits (it should be noted however that MTV, for one, continues to retain its mobile video ad inventory to sell itself).

With its focus on building out a mobile video ad network, my guess is that eventually Transpera will see competition from today's broadband ad networks, who are arguably well-positioned to play in the mobile space as consumption surges.

For now though, given how early it is in mobile video's evolution, the key is building trial and usage. For many content providers mobile video is brand new and the ROI unproven. Though they've likely maintained so-called WAP sites for mobile browsers, video is a whole new ball game. Driving video consumption and legitimizing the mobile medium - as has happened with broadband - is job #1 for all the players in this exciting new space.

What do you think? Post a comment now!

TasteOfHome.com (TOH for short), the companion web site of Taste of Home magazine, (a top 10 magazine owned by Reader's Digest Association with a circulation of 3.1 million) is forging an innovative new model for magazines seeking to pursue broadband video.

As many VideoNuze readers know, I've been bullish on the opportunities broadband presents to traditional print media, especially magazines with strong niche appeal. What's new and different about TOH's effort is that it brings together several other key broadband themes I've previously discussed - purpose-driven user generated video, simple syndication and the evolving editorial role in the broadband era - to create a compelling publishing model and value proposition for its target audience.

As background, TOH's original print model was to solicit, filter and package user-submitted recipes into a bi-monthly magazine. That model has continued online, and TOH now offers 34,000+ recipes. As Renee Jordan, TOH's General Manager, who I spoke to yesterday, told me, TOH's audience is highly engaged and cooks 5 days/week. They also seek information from many sources, TV, magazines, newspapers, online, etc.

TOH operates a test kitchen where its chefs prepare selected user-submitted recipes. About a year ago, seeing the growth of video, TOH began updating its kitchen so that the chefs could be taped. To date, the company has produced 300 videos - a big accomplishment, but still just a tiny fraction of its total 34,000 available recipes.

To address the need for more high-quality video while retaining a strong degree of editorial control, TOH has tapped into the UGV frenzy by using aggregation and filtering tools from Magnify.net, a company I've previously covered. An editor at TOH is able to create "playlists" or specialized sub-channels (e.g. "Death by Chocolate," College Cooking," "Football Kickoff Party") by aggregating the best user-generated videos to be found at sites across the web and also by mixing/matching TOH's own videos into the playlists.

Renee explained that sometimes TOH might pair a video of how to make roasted potatoes, for example, with a recipe for how to do the same. Or it might pair a video of how to make a great lamb chop with the potato recipe. The combinations are endless. And users have the ability to subscribe to different playlists as well as customize them. TOH's use of the web's embeddable videos is another example of what I've called the "syndicated video economy."

The key is that TOH retains editorial control over which videos it incorporates. By harnessing users' passion to create their own high-quality videos, TOH's editorial role shifts from solely creating - on its own dime - every ounce of content it offers, to instead becoming a hybrid creator-curator. Renee acknowledges this is a meaningful shift, which might make many in traditional media uncomfortable. Still, she says matter-of-factly, "this is what needs to happen in the real world of the Internet."

I wholeheartedly agree. As if the Internet itself didn't create enough upheaval for many in traditional media, broadband video is now blurring competition further. In this example TOH is now able to re-position itself to its audience as a credible alternative to FoodNetwork.com (for example) when searching for the best cooking videos. That benefit spills over to advertising as well, as it has huge upside inventory potential for targeted pre-rolls and overlays.

To be fair, this is still a very new initiative. But the results are encouraging: TOH has doubled its video selection in just weeks - at little expense - and has increased its video-related page views by 50%. Other print media would be wise to take note of this new model. Ditto for incumbent video providers.

What do you think? Post a comment.

Comcast's Fancast broadband portal has received a much-needed facelift, adding new features and content to compete with other well-funded players in this space. (Note: before you conclude that VideoNuze has become obsessed with covering Comcast - since just yesterday I dug into its ISP policies - rest assured, tomorrow I'll move on!)

Fancast is by far the most ambitious portal effort among the major cable operators. In fact, while other operators' portals target just their own ISP customers, Comcast's goal is to have Fancast compete for ANY broadband user's attention. That means that Fancast goes head to head with ad-based broadband aggregators like Hulu, Veoh, Joost, Metacafe, etc. And now with Fancast's new video download store, it also butts up against folks like iTunes, Amazon Unbox, Xbox LIVE Marketplace, etc. Then of course there's YouTube, the 800 pound gorilla of the broadband video world, which all aggregators, compete with on one level or another.

With such a formidable array of competitors, Fancast has a high bar to succeed. Still, I've maintained for a while that Comcast, with its 14 million+ broadband subscribers and 22 million+ cable subscribers is extremely well-positioned and needed to play aggressively in broadband video distribution. To date though I've been underwhelmed by Fancast, which seemed to have a solid vision, but sub-par execution. (For more on this, see 2 previous posts, here and here, comparing Hulu and Fancast.)

Now, with Fancast's facelift, the portal is getting some mojo. Fancast's director of communications Kate Noel recently took me on a spin through what's new. First up is a new home page (see below) that nicely showcases premium content that is curated by an in-house editorial team. Clicking on a selection reveals an oversize video player (which can be further enlarged to full screen). New features include embedding and sharing, along with a handy tool to be notified when a new episode is offered.

There's also a noticeable improvement in content selection, which Kate says now includes over 37,500 video assets; 320+ individual TV programs, 250+ movies and countless trailers and clips from over 100 content partners. Fancast is also putting a heavy emphasis on editorial differentiation, and has created sections such as "Today's Top 5," "Daily Buzz (blog)" and "Discover All Your Favorites." to help orient users on the site and provide editorial perspective.

This all plays to what Kate says is Fancast's larger mission to not just "offer TV online," but rather to "use Fancast as a cross-platform hub" that draws value from and drives value to Comcast's other offerings - digital cable, VOD and DVR service in particular.

With Comcast's huge cable subscriber base, that sounds right in theory. But how exactly Fancast fully executes on that potential still feels squishy. For example, doing a search for a current episode of "Mad Men" reveals a nice option to watch on VOD (since it's not currently on Fancast - that's a whole other story...), but is this really a game-changer? A much more significant lever at Comcast's disposal would be getting Fancast onto their digital cable boxes, so all that great Fancast content could be consumed in the living room (maybe along with YouTube, Funnyordie, NYTimes.com and other video?). The nagging question remains: will that day ever come?

One last thing that struck me about Fancast was its seemingly murky relationship with Hulu, which supplies many of Fancast's movies, and some of its TV programs. Is Hulu a Fancast competitor, a partner, both? Kate says Hulu is not competitive. Yet at the end of the day, aren't both Hulu and Fancast competing for the same ad dollars, and eyeballs? Here's another question: with Comcast's vast programming arm, why can't it procure movies directly from studios, instead of cutting Hulu in on the action? I must say, it's all very confusing.

Still, to the average user, the new Fancast is an improvement, and there is more progress yet to come.

What do you think? Post a comment now!

Please join me next Thursday, Sept. 11th for a webinar entitled, "Don't Get Screened Out: How to Make Video Profitable Across Multiple Screens." I'll be sharing thoughts on how the video landscape is changing to incorporate not just broadband, but also mobile devices. With the recent introduction of the iPhone and a slew of smartphones, mobile video is starting to gain steam. The webinar is sponsored by ExtendMedia, and Chris Gardner, the company's Chief Marketing Officer will share details of how their customers are already succeeding with three screen initiatives.

Click here to register