VideoNuze Posts

There's been a lot of buzz over the last couple of days about J.P. Morgan's just-released "Nothing But Net - 2009 Internet Investment Guide," including many references to Morgan's distinctly bearish commentary on online video. I'm always interested in what other analysts are saying about video, so I downloaded the document yesterday. Though it's 340 pages, only 2 pages (81-82) are devoted to online video specifically. (And incidentally, as best I can tell, that's 2 pages more than the "Nothing But Net - 2008" devoted to the video industry.)

I have to say I found Morgan's write-up to be quite superficial, with a generally dismissive tone regarding online video's opportunity. Like many Wall Street analyst reports I've previously read, it seems more focused on near-term financial prospects than longer-term strategic opportunities. An investment professional without in-depth knowledge of online video trends who read the report would likely conclude that it's not worth spending much time on online video, at least in the near term. That would be a critical mistake, because, as I've said many times, online delivery is the single most disruptive influence on the video industry today.

Morgan's analysis is strictly focused on the ad-supported model. No attention is paid to broadband's impact on the multi-billion dollar multichannel subscription TV or home video markets which companies like Netflix, Amazon, Apple and others are pursuing with disruptive fervor. As for advertising, while Morgan acknowledges that online video usage has taken off, it believes that "performance-based marketers and brand advertisers are looking at three variables in determining their investment: reach, content quality and performance measurability." In Morgan's view, today's "advertising formats do not appropriately address these three variables."

It's important to note that a key Morgan theme is that performance-based advertising models like search are more desirable than CPM-based models like display, and most video ads today. Morgan believes (and I do agree) that performance and ROI-tracking will become even more important in the down economy where ad dollars are scarce and must deliver real sales results.

Still, the reality is that over time, online video ad dollars are most likely to be shifted from TV, which is a CPM-based medium. And online video ad units offer far greater interactivity than TV ever has. But this still misses a larger point - video is a CPM-based medium because video is the pre-eminent media format to make an impression on a consumer. Nothing packs the same emotional impact as video, and that's why brands have always been drawn to TV advertising. In short, while the overall online ad market is shifting to performance, brands will always need a visual medium. With all the challenges traditional TV has (e.g. DVR-based ad skipping, audience fragmentation, etc.), online video formats that are engaging, non-skippable and interactive will gain in appeal.

If brands' interest in online video advertising is so challenged, you wouldn't know it from actual experience. In 10 minutes of random sampling this morning here are ads I saw: Oreos (MTV.com), HP (ComedyCentral.com), Blackberry, Target (Hulu), Gillette, IBM (ESPN.com), Ritz, Sears (ABC.com) and Dunkin' Donuts, Robitussin (Yahoo). I'm not suggesting that the online video medium doesn't have its challenges in attracting brands, but based on everything I continue to hear, the premium video sites in particular - like those cited above - are holding up pretty well even in this environment. Even much-maligned user-generated video may have some unexpected silver linings; just yesterday it was reported that Japanese anime producer Kadokwa Group Holdings is pulling in $110,000/mo from its YouTube channel stocked with user-created material.

Far from being the uninteresting medium that the Morgan report depicts, online video has already become a bright spot for many established content providers whose traditional models are under pressure. It is also opening up new opportunities for new ad-supported entrants. And it is threatening to completely upend the paid part of market through improvements in "over-the-top" technologies and consumer services.

To be sure, the medium is still in its adolescence. But that's all the more reason why savvy investors, entrepreneurs and other market participants who look past cursory industry reports, and instead choose to dig in and understand the massive disruption online video is causing will do quite well in the long term.

What do you think? Post a comment now.

Amazon and Roku announced yesterday that Amazon's VOD service will soon be available on Roku's $99 Digital Video Player. The deal starts to make good on Roku CEO Anthony Woods's intentions about "opening up the platform to anyone who wants to put their video service on this box."

With Amazon VOD's 40,000+ TV programs and movies added to the 12,000 titles already available to Netflix subscribers via its Watch Instantly service (plus more content deals yet to come), little Roku is starting to look like a potentially important link in the evolving "over-the-top" video distribution value chain.

More interesting though, is that I think we're starting to see the battle lines drawn for supremacy in the download-to-own/download-to-rent premium video category between Amazon on one side and Apple on the other. Though Apple dominates this market today, having sold 200 million TV programs alone, there are ample reasons to believe competition is going to stiffen.

Apple is of course in the video download business for the same reasons it was in the music download business: to drive sales of the iPod and more recently - and to a lesser extent - the iPhone. According to the latest info I could find, iTunes now has 32,000+ TV programs and movies, including a growing number in HD. For now that's slightly less than Amazon VOD, but my guess is that over time the two libraries will be virtually identical.

While Apple has a near monopoly on portable viewing via the iPod and iPhone, it is a laggard in bridging broadband-to-the-TV. Its Apple TV device, introduced in January, 2007, and meant to give iTunes access on the TV, has been an underperformer. Certainly a detractor has been price, with the 40GB lower-end model still running $229. But more importantly, as an iTunes-only box, Apple TV perpetuates a closed, "walled-garden" paradigm that consumers are increasingly rejecting (as companies like Roku astutely understand).

For Amazon, the world's largest online retailer, video downloads are a rich growth market. The company brings significant advantages to the table, starting with tens of millions of existing customer relationships with credit cards or other payment options just waiting to be charged for video downloads. Amazon has strong brand name recognition and trust. And of course, it has a near-limitless ability to cross-promote downloads with DVDs and other products.

Determined not to be left behind in the great race to get broadband delivered video all the way to the TV, it has been integrating its VOD service with 3rd party devices like TiVo, Sony's Bravia Internet Video Link, Xbox 360 and Windows Media Center PCs. Its latest deal with Roku is far from its last.

Amazon VOD's adoption will benefit from the fact that there are many non-Amazon reasons that people will be buying these devices. For example, consider Roku, TiVo and Xbox 360. With Roku, Netflix is fueling sales. As Netflix subscribers realize that new releases are generally not available in Watch Instantly, but are through Amazon VOD on Roku, they'll be prone to give Amazon VOD a try (the Netflix limitation is course due to Hollywood's windowing, and another reason why I believe it's crucial for Netflix to make deals with broadcast networks for online distribution of their hit programs). For TiVo and Xbox 360, each has a well-defined value proposition for consumers to purchase. Amazon VOD's availability is a pure bonus for buyers.

Apple and Amazon hardly have the market to themselves though. Others like Microsoft Xbox LIVE, Vudu and Sezmi are vying for a place in the market. And then of course there are the VOD offerings from the cable/satellite/telco video service providers, who have big-time incumbency advantages. Not to be forgotten in all of this is consumer inertia around the robust DVD market, which to a large extent all of these video download options seek to supplant.

In the middle of all this are Joe and Jane Consumer - soon to be overwhelmed by a barrage of competing and confusing offers for how to get on-demand TV program and movie downloads in better, faster and cheaper ways. In this market, I believe simplicity, content choices, brand and especially price will determine the eventual winners and losers. These are front and center considerations for Amazon, Apple and all the others going forward.

What do you think? Post a comment now.

Happy New Year and welcome to 2009.

The new year is picking up right where the old year left off - with Netflix adding yet another way for its subscribers to use its Watch Instantly streaming service on their TVs. Today's announcement that its WI software will be embedded in a select number of new LG "Broadband HDTVs" is more evidence of how content providers and consumer electronics companies are aiming to go "over the top" of cable/satellite/telco, driving high quality broadband video all the way to the TV.

The new LG Broadband HDTVs joins XBox 360, TiVo, Samsung and LG Blu-ray players and Roku as options for Netflix subscribers looking to watch WI on their TVs. The differentiator here is that this is the first "boxless" approach, so it offers a potentially simpler (though not less expensive) solution for consumers. No doubt it is the first of many deals Netflix will announce with TV manufacturers in '09.

Still, my bet is that the group of box-based solutions will matter more to WI usage for a long time to come. That's because, even though LG is the #3 HDTV manufacturer, TV set replacement cycles are getting longer with the down economy, the new Broadband HDTVs will likely have a several hundred dollar price premium, and importantly, a solid portion of the existing Netflix subscriber target audience for these broadband sets may have long since been using one of the box-based alternatives and not see a lot of incremental benefit in buying one of the LG Broadband HDTVs.

Nevertheless, I think an interesting target market for these sets are non-Netflix subscribers, who are open to a "cord-cutting" proposition. Netflix is laying the groundwork for becoming a genuine alternative to today's multichannel subscription video services. As I've said before, to make itself more viable as an alternative, the most important thing Netflix can do is beef-up WI's broadcast network programming library.

When top-tier broadcast network programming is combined with its movie catalog, Netflix could become very appealing for consumers who don't care much about cable network programs or sports. For $17/month for Netflix vs. $60/month or more for a typical digital TV package from cable/satellite/telco, the math on paying the premium for the Netflix-enabled LG TV becomes much more interesting. Importantly, the retailer has a much stronger hook to sell the LG Broadband HDTVs, especially if, as an added incentive, Netflix perhaps threw in a 3-4 month trial subscription.

The bottom line here is that Netflix continues to do the right thing by building out the portfolio of devices that play its WI streaming programming. The bigger the addressable audience is, the more that content providers of all stripes will take notice and want to do deals (Netflix's expansion of its promotional deal with Showtime is a useful data point on this subject). No other non-cable/satellite/telco subscription video service is close to Netflix in terms of number of subscribers, compatible streaming devices, library or brand name. In '09, Netflix is poised to build on these advantages as it morphs itself into an over-the-top broadband powerhouse.

What do you think? Post a comment now.

At last, it's time to say goodbye to 2008. I'm sure we'd all agree that for all kinds of good and not-so-good reasons, the year will be one to remember.

2008 was an important year of growth and change for the broadband video industry. To me, the most significant development was the first-time use of broadband video by millions of users and the deepening use of it by millions of others. Broadband is well on its way to becoming the most adopted and heavily-used medium ever.

There were many key moments during the year which drove users to their PCs (mainly) to check out the videos they wanted, when they wanted them. Moments like the Summer Olympics, Tina Fey's Sarah Palin sketches, Jeremiah Wright's rants, to name just a few. It was also a year in which broadcast programs were viewed online millions of time, offbeat user-generated videos continued their popularity and professional talent launched their own broadband-only initiatives.

As I've said repeatedly, broadband's "openness" - the ability for any content provider to connect directly with its intended audience - is its most critical differentiator. Broadband's openness is causing transformational change in the traditional video distribution value chain, impelling incumbents of all stripes to evolve in order to survive. Meanwhile, a whole new crop of content providers, distributors and technology companies has sprung up to seize broadband's new opportunities.

It is both dizzying and exhilarating to make sense of all of this. When I first started VideoNuze in the fall of '07, the thought of trying to do so was quite nerve-racking. Yet through countless interactions with many of you, I've gotten my groove as the year has progressed. I continue to learn something each day from the large and growing VideoNuze community, and hopefully through the increasing number of comments on the site, you're learning from each other as well.

In 2008, VideoNuze's first full year, between me and a handful of contributors, there were over 300 posts, totaling over 175,000 words, plus 2,000+ news items added to the site from 40 different industry publications. Though that's quite prolific it is still far less output than you'll see elsewhere online. But my goal has been quality rather than quantity. I'd rather you read 1 insightful piece from VideoNuze each day than 5 that do little more than magnify the blogosphere's already deafening echo chamber.

I'm proud that many of you have told me VideoNuze's posts have helped you gain a better understanding of the broadband market's dynamics and how best to develop your own strategies and implementation plans. That's the whole point of VideoNuze; to become indispensible to anyone with a stake in their organization's success with broadband video. In 2009, I'll continue working hard toward that goal. I appreciate your support and time and I look forward to much more interaction with you in the coming year.

In the meantime, I wish you a happy and healthy holiday season...see you in January!

FreeWheel is one of the best examples of a company completely focused on the Syndicated Video Economy, recently announcing CBS and Warner Bros. as customers. The key MRM 2.0 enhancements include auto-translation of third-party ad server tags (which eliminates a layer of manual work), support for IAB in-video ad metrics and improved usability in its work flow.

I caught up with Jed Simmons, COO/co-founder of Next New Networks, which was one of FreeWheel's first customers. Jed's particularly excited about how FreeWheel enables NNN to sell and easily implement specific ad packages across multiple partner sites. He's seen pieces of what FreeWheel does from other companies, but none that are as advanced or focused specifically on syndication's budding opportunities. MRM's advances are another example of why I'm predicting big things from the SVE in '09. The building blocks for syndication's success continue falling into place.

What do you think? Post a comment.

Want to get your head spinning? Try making sense of the various research data that keeps spilling out about current TV consumption, and how it is being impacted by broadband video's rising popularity.

For those who think TV is largely unaffected, consider this: Last month, Nielsen reported that the average person in the U.S. watched approximately 142 hours of TV a month, which was 5 hours more than last year. Though Nielsen also said that watching video online and watching video on a mobile phone also clocked in new records at 2 hours, 31 minutes per month and 3 hours, 37 minutes per month, respectively (though, more mobile video use than online video use? That seems odd to me...).

These positive TV numbers echo what Multichannel News reported CBS research head David Poltrack recently shared: that even though 75% of TV viewers have now watched some video online, TV viewing in all demographics have gone up 8% since 2000. So maybe TV viewing isn't being hurt much.

But on the flip side is evidence that, particularly among young people, TV has already been hurt by broadband and other alternatives. Just yesterday Adweek reported upcoming numbers from Deloitte showing that viewing among 14 to 25-year-olds is now down to 10.5 hours per week, while their time spent watching video on computers continues to rise. These numbers build on research from IBM released last month that among the 76% of people they surveyed, 15% said they watched "slightly less" TV and 36% watch "significantly less" TV (note this was a 6 country study). There are other reports which have showed similar trends.

What should one conclude? My take is that broadband and other outlets are certainly having an impact among younger people, where the digital lifestyle is most pervasive. However, there are still a whole lot of people living a mainly analog lifestyle. While that provides the TV industry some short-term comfort, the long-term trends almost certainly favor less TV viewing.

What do you think? Post a comment now.

I've been optimistic about print publishers' (magazines and newspapers) opportunity to expand into broadband video for a while now. They bring recognized brands, editorial expertise and advertising relationship to their video initiatives. But of course they have plenty of learning to do about how to create compelling yet inexpensive video that serves their audience's needs.

Yesterday's Online Media Daily had a good piece on what Forbes, Conde Nast and the NY Times for example, are doing to bolster their video efforts. Their executives' sentiments echo what I heard from Eric Grilly, president of Philly.com, the web site associated with the Philadelphia Inquirer, in a recent conversation with him.

Philly.com has been building out a number of programs this year on topics including wine ("Philly Uncorked"), local restaurants ("The Philly Dish") and local gossip ("The Gossip with Marnie Hall"). Philly.com seems to have hit on an initial formula for identifying a sponsor first, recruiting outside talent and regularly releasing episodes. Eric noted he's not trying to compete with local broadcasters, but rather trying to do something new and different. The programs look like they're inexpensive to make, but have high advertiser appeal. Despite print publishers' larger challenges, I expect to see them continue pushing hard into video in '09.

What do you think? Post a comment now.

For those who weren't up for reading 700-1,000 words each day last week, today I offer a quick recap my 5 broadband video projections for 2009.

1. The Syndicated Video Economy Accelerates

This one is easily my least controversial prediction, since I've been writing about this trend for most of 2008. The "SVE" as I call it, is an ecosystem of video content providers, distributors and the technology companies who facilitate their relationships. In '08 video content providers increasingly realized that widespread distribution to the sites that users already frequent would improve on the "one central destination site" approach. That's a big change in the traditional media mentality. In '09 the SVE will only accelerate, as the technology building blocks for distributing, monetizing and measuring syndicated video continues to improve. To be sure, the SVE is still nascent, but many companies across the broadband landscape have begun embracing it in earnest.

2. Mobile Video Takes Off, Finally

In '08 VideoNuze has been mainly focused on wired broadband delivery of video to homes and businesses. But as the year has progressed, powerful new mobile devices have mutated the definition of broadband to also include wireless delivery. The huge success of the iPhone and other newer video-capable devices, coupled with 3G, and soon 4G networks, have contributed to mobile delivery finally realizing some of its long-held promise. Still, as some of you commented, obstacles remain. iPhones don't support Flash, the most popular video format. Wireless carriers are careful with doling out too much bandwidth for video apps. And so on. Still, '08 was a big year for video delivery to mobile devices, and I think '09 will be even bigger.

3. Net Neutrality Remains Dormant

Proponents of "net neutrality" legislation, which would codify the Internet's level playing field, expected that under an Obama administration they would finally be granted their wish, particularly since he supported the concept on the campaign trail. But I'm predicting that net neutrality will be dormant for yet another year. Mr. Obama has been emphatic about basing policy decisions on facts and data, and this is an area where net neutrality advocates continue to come up short as there's yet to be any sustained and proven ISP misbehavior. With Mr. Obama and his team having urgent fires to address all around them, there are only two scenarios I can see that move net neutrality up the prioritization list: a startling new pattern of ISP misbehavior or some kind of deal ISPs agree to in exchange for infrastructure buildout subsidies from the stimulus package.

4. Ad-Supported Premium Video Aggregators Shakeout

One of the best-funded categories of the broadband landscape has been aggregators of premium-quality video - TV programs, movies and other well-produced video. These companies have been thought of as potential long-term online competitors to today's video distributors (cable/satellite/telco). However, it's proving very difficult for these sites to differentiate themselves. Content is commonly available, user experience advantages are hard to maintain, user acquisition is not straightforward, audiences are fragmented and ad dollars are under pressure. All of this means that '09 will see a shakeout among the many players in this category, though it's hard to predict at this point who will be left standing (though at a minimum I expect Hulu and Fancast to be in this group).

5. Microsoft Will Acquire Netflix

My long-ball prediction was that at some point in '09 Microsoft will acquire Netflix. Though many of you emailed me offering kudos for boldness, not many are buying into my prediction. Fair enough, I'll either be flat-out wrong on this one or I'll get a gold star for prescience. I provided my rationale, which starts with the assumption that Apple and Google (Microsoft's two fiercest rivals in the consumer space) are best-positioned for success in the battle for the biggest consumer prize of the next 10 years: delivering broadband video services directly to the TV.

I think Microsoft needs to directly play in this space, and Netflix is a perfect vehicle. It has a great brand, a large and loyal subscriber base and excellent back-end fulfillment systems. In 2008 Netflix great strides in broadband, building out its "Watch Instantly" feature. Yet to grow WI's catalog from its current 12K titles to anything approaching the 100K+ available by DVD will require deep financial resources to deal with a recalcitrant Hollywood, and also shelter from quarter-to-quarter earnings pressures. Netflix's measured approach to broadband is consistent with its historical overall operating style. While that style has worked exceedingly well in the past, the broadband-to-the-TV service landscape is wide open right now, and Netflix should be pursuing in a thoughtful, yet ultra-aggressive way. Combined with Microsoft it would be poised to become the broadband video category leader over the next 10 years.

OK, there's the summary. I'll be checking back in on these as the year progresses.

What do you think? Post a comment now.