VideoNuze Posts

Yesterday I moderated the closing general session panel of the CTAM Summit, which included Paul Bascobert (Chief Marketing Officer, Dow Jones & Company), Matt Bond (EVP, Content Acquisition, Comcast), Andy Heller (Vice Chairman, Turner Broadcasting System, Inc.), Jason Kilar (CEO, Hulu), David Preschlack (EVP, Disney and ESPN Networks Affiliate U.S. Sales and Marketing) and Peter Stern (EVP & Chief Strategy Officer, Time Warner Cable). The session offered a prime opportunity to better understand the cable industry's strategy for success in the broadband video era.

In yesterday's post I asserted that the cable industry's main challenge is balancing its desire to preserve its highly successful subscription/ad-supported business model, while meeting consumers' increasing demands for flexibility. At a very high level the two goals are not incompatible; in particular the concept of TV Everywhere could well be a killer app in serving both. Rather, for me, yesterday's session reinforced my concern that the industry is still too focused on the TV platform, and not sufficiently acknowledging consumers' behavioral shifts to online consumption. These are not my sentiments alone; walking the halls of the Colorado Convention Center, various industry participants expressed their concern, in one way or another, that the industry is still not fully in synch with changing times.

On the panel Peter made great points citing data that a very high proportion of online viewing is in the home, and that the amount of time spent viewing online video is still tiny compared to traditional TV viewing. The latter point is one I often make as well, though I believe an equally important point is the remarkable rate at which online video's viewership has grown over the last several years.

On the surface, I agree with Peter's insistence that 80% of the industry's focus should be on improving the TV experience, as that's where consumers primarily watch today, and where the industry has its greatest strength. In fact in yesterday's post, I lamented the industry's underinvestment in VOD as resulting in gaps that competitors are exploiting. These gaps, whether in discoverability, content availability, ease-of-use or monetization desperately need to be closed.

Digging deeper though, a core issue I have with Peter's approach (which is common in the industry btw) is that it doesn't seem to acknowledge that online video is its own medium and should be prioritized as such. Online video is not something that should be thought of as being incorporated into the TV experience. Rather, I believe millions of users see online video as its own medium, with breakthrough benefits such as anywhere access, searchability, sharing, interactivity, personalization and so on.

My conclusion is that the cable industry would be best served by understanding these differences and what they say about consumers' shifting desires and behaviors. Then the industry should aggressively embrace these differences to capitalize on this new medium in ways far beyond just providing the underlying broadband access, as it does today. TV Everywhere, as it is currently conceived, is just a starting point. To be clear, I'm not suggesting the industry should not also be optimizing the TV experience. But rather than devoting 80% of its energies to this, it should be equally balancing its investments so that it is concurrently trying to optimize the online (and mobile) video experience as well.

A point that Paul made seemed right on the money to me: when the WSJ thinks of different platforms, "context is key." Trying to serve their users' needs, given what they want at a particular moment and their physical situation drives the WSJ's product strategy. But note, just as the WSJ's online edition is the poster child for success in paid subscriptions (which the WSJ has now extended to paid mobile applications), it is also celebrating this week its new (and first-time) status as America's most widely-circulated newspaper. The takeaway for the cable industry: you can simultaneously invest and succeed in both new and traditional media, they are not mutually exclusive.

Prior to yesterday's panel, in an acceptance speech for receiving CTAM's 'Grand TAM' annual award, Bob Miron, the chairman of cable operator Advance/Newhouse, correctly acknowledged the rise of freely-available broadband video as a significant new challenge to the cable industry's traditional business model. Based on his 50 years in the business, his prescription for success was to remember the "customer is king." In myriad ways - some overt and some subtle - the cable industry's customers are telling it that broadband video is a new medium they highly value. To succeed in the broadband video era the cable industry must fully acknowledge, embrace and capitalize on this.

What do you think? Post a comment now.

Against a backdrop of rapidly rising broadband video consumption, cable operators and networks are trying to strike a balance between preserving their traditional, and highly profitable business model, while still keeping pace with consumers' desire for more flexible and on-demand viewing options. A nagging question is whether full-length cable programs should be made available online for free, solely supported by advertising (the Hulu model), or if the cable industry's dual subscription/advertising model should be extended online (the TV Everywhere concept).

On the panel, Rebecca likely reflected many cable networks' current thoughts, saying, "We are in an ecosystem with our distribution partners that works....It (the free model) is going to kill all of our business; it's certainly going to kill our ability to produce high quality programming." These sentiments echo concerns I've raised about the viability of ad-supported long-form video. Even as Rebecca was critical of the free model, she noted that Discovery is taking a measured approach to TV Everywhere.

Chief among Rebecca's concerns regarding TV Everywhere is the need to accurately measure online viewership, crucial for ensuring that if viewership were to shift to online, that Discovery's ratings would not be hurt in the process. As Rebecca further pointed out, measurement issues have limited the appeal of cable operators' Video-on-Demand offerings.

Bruce went a step further to suggest that cable operators should learn from VOD's shortcomings when crafting their TV Everywhere plans. Bruce said that VOD rollouts "were led by engineers on a node-by-node basis" when they should have been led by marketers, and that "some operators introduced VOD only with trepidation." He believes that the problems that VOD had in the early days, "are still impacting consumers' perception of the on-demand platform."

Another VOD lesson I would add is that operators must also make TV Everywhere monetizable for their content partners. VOD has suffered significantly from operators not investing in dynamic ad-insertion capabilities, making VOD a marginal opportunity for ad-supported cable networks. A day earlier on another CTAM Summit panel, Steve Burke, Comcast's COO highlighted the fact that Comcast is now generating 300 million VOD sessions/month. But he also noted that Comcast has only just launched a dynamic ad-insertion capability, and in just one of its operations. It continues to bewilder me why Comcast wasn't investing in dynamic ad insertion when it was doing 10 million VOD sessions/month, years ago. How much further along might the VOD platform be, had robust advertising been possible?

As a result, it's fair to wonder whether operators will invest in TV Everywhere sufficiently to make it attractive as a new distribution platform, or alternatively will leave critical components unresolved as they've done with VOD. The answer could well determine whether TV Everywhere is a killer app (as I believe it has the potential to be) or if just becomes a half-baked nice-to-have for consumers and content providers alike. For Comcast at least, thePlatform and other technologies are important building blocks to success. As Ian pointed out, the key is being able to "quickly ascertain" the networks and programs that subscribers should have access to, a challenge that gets more complicated as content available through TV Everywhere-type offerings grows over time.

If cable doesn't get TV Everywhere quite right another implication is that certain gaps in consumers' experiences will persist - gaps that companies like Roku are seeking to fill with video they're bringing into the home solely over broadband connections. Today the $99 Roku device offers users the ability stream Netflix, Amazon and MLB video. It's tempting to see Roku as a potential cable competitor down the road, yet Chuck was quick to clarify that Roku sees itself as augmenting the cable experience, not supplanting it. In fact, he added that Roku is talking to cable operators about how it can partner with Roku to extend their viewer experiences.

Coming away from the session I'm reminded that while broadband is causing significant shifts in consumer behavior and expectations, fully capitalizing on them will take time as business requirements and technologies evolve.

What do you think? Post a comment now.

(Note: Steve Donohue contributed to this post.)

Following are 4 items worth noting from the Oct 19th week:

1. FCC kicks off net neutrality rulemaking process among flurry of input - As expected, the FCC kicked off its net neutrality rulemaking process yesterday, with all commissioners voting to explore how to set rules regulating the Internet for the first time, though Republican appointees dissented on whether new rules were in fact needed.

Leading up to the vote there was a flurry of input by stakeholders and Congress. Everyone agrees on the "motherhood and apple pie" goal that the Internet must remain open and free. The disagreement is over whether new rules are required to accomplish this, and if there are to be new rules what specifically should they be. As I argued here, the FCC is treading into very tricky waters, and law of unintended consequences looms. Already telco executives are talking about curtailing investments in network infrastructure, the opposite of what the FCC is trying to foster. The FCC will be seeking input from stakeholders as part of the process. Even though chairman Genachowski's bias to regulate is very clear, let's hope that as the data and facts are presented, the FCC is able to come to right decision, which is to leave the well-functioning Internet alone.

2. New Cisco research substantiates video, social networking usage - Speaking of the well-functioning Internet, Cisco released its Visual Networking Index study this week based on research gathered from 20 leading service providers. Cisco found that the average broadband connection consumes 4.3 gigabytes of "visual networking applications" (video, social networking and collaboration) per month, or the equivalent of 20 short videos. (Note that comScore's Aug data said of the 161 million viewers in the U.S. alone, the average number of videos viewed per month was 157.) I'm not sure what the difference is other than Cisco is measuring global traffic and comScore data is at U.S. only. Regardless, the Cisco research continues to demonstrate that users are shifting to more bandwidth-intensive applications, and the Internet is scaling up to meet their demands.

3. Netflix reports strong Q3 '09 earnings, streaming usage surges - Netflix continues to stand out as unaffected by the economy's woes, reporting its Q3 results late yesterday that included adding 510,000 net new subscribers, almost double the 261,000 from Q3 '08. The company finished the quarter with 11.1 million subs and projects to end the year with 12 to 12.3 million subs. If Netflix were a cable operator it would be the 3rd largest, just behind Time Warner Cable, which has approximately 13 million video subscribers.

Netflix CEO Reed Hastings also disclosed that 42% of Netflix's subscribers watched a TV episode or movie using the "Watch Instantly" streaming feature during the quarter, up from 22% in Q3 '08. Hastings also said in 2010 the company will begin streaming internationally, even though it has no plans to ship DVDs outside the U.S. He added that in Q4 Netflix will announce yet another CE device on which Watch Instantly will be available (just this week it also announced a partnership with Best Buy to integrate Watch Instantly with Insignia Blu-ray players). Net, net, Watch Instantly looks like it's getting great traction for Netflix and will continue to be a bigger part of the company's mix. Yet as I've mentioned in the past, a key challenge for Netflix is making more content available for streaming.

4. Yahoo's pact with GroupM for original branded entertainment raises more questions - Shifting gears, Yahoo and GroupM, the media buying powerhouse announced a deal this week to begin co-producing original branded entertainment for advertisers. The idea is to then distribute the video throughout Yahoo's News, Sports, Finance and Entertainment sections. GroupM has had some success in the past, as its "In the Motherhood" series, created for Sprint and Unilever, was picked up by ABC, though it was quickly canceled. As I pointed out in my recent post about Break Media, branded entertainment initiatives continue to grow.

Less clear to me is Yahoo's approach to video. CEO Carol Bartz said last month that "video is so crucial to our users and our advertisers..." that "there's a big emphasis inside Yahoo on our video platforms" and that "a big cornerstone of our strategy is video." OK, but these comments came just months after Yahoo closed down its Maven Networks platform, which it had only acquired in Feb '08. Having spent time at Maven, I can attest that its technology would have been well-suited to supporting the engagement and interactivity requirements of these new Yahoo-GroupM branded entertainment projects. Yahoo's video strategy, such as it is, remains very confusing to me.

Note there will be no VideoNuze email on Monday as I'll be in Denver moderating the Broadband Video Leadership Breakfast at the CTAM Summit...enjoy your weekend!

Daisy Whitney and I are pleased to present the 37th edition of the VideoNuze Report podcast, for October 23rd, 2009.

This week Daisy and I discuss my post from yesterday, "In the Digital Era, Disney is Walking to the Beat of its Own Drummer," which picks up on a WSJ article from Wednesday about the company's new DRM initiative dubbed "Keychest." Disney appears to be taking a lone-wolf approach since other Hollywood studios and technology companies have rallied around DECE, the Digital Entertainment Content Ecosystem. When combined with its ongoing resistance to TV Everywhere (while other cable networks jump on board), I argue in the post that Disney appears to be adopting a much more individualistic approach to how it envisions pricing and delivering its content in the digital era.

On the TV Everywhere topic, Daisy shares observations from a recent Beet.tv executive roundtable she covered, in which participants debated the concept's benefits to consumers. Daisy cites how the NYTimes.com isn't currently offering embeddable video as an example of how rights remain a key challenge for online video distribution. Online rights will be one of the factors determining how much content is made available in TV Everywhere at launch.

Click here to listen to the podcast (14 minutes, 59 seconds)

Click here for previous podcasts

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

Yesterday's WSJ article about Disney's new DRM initiative, dubbed "Keychest" was another sign that in the digital era, Disney keeps walking to the beat of its own drummer. Combine Keychest with Disney CEO Bob Iger's repeated skepticism about TV Everywhere and the need for Disney to receive incremental payments for online distribution and it's not hard to conclude that Disney envisions retaining much more control over how its content is delivered and priced going forward. It's also not hard to conclude that Disney's largest individual shareholder Steve Jobs's influence is being felt in the company's decision-making.

The Keychest DRM initiative in particular shows a real streak of separatism by Disney given the critical mass that DECE (the Digital Entertainment Content Ecosystem) has gained. DECE counts among its members multiple studios (Sony, Warner Bros., NBCU, Lionsgate, Fox), technology providers (Microsoft, Intel, Dolby, Philips, HP, Cisco, etc.) and delivery outlets (Comcast, Best Buy). Granted, DECE hasn't shown a whole lot of progress yet, but that's pretty much to be expected when you have this many big players at the table. Still, even getting all these companies to join forces is a hopeful sign of inter-industry collaboration.

And as the WSJ article underscores, the need to introduce some form of standardized DRM for movies in particular is growing more urgent. DVD sales, the industry's cash cow for years, are off by 25% at certain studios, yet movie downloads don't yet come close to filling the gap. Downloading is not only still a new experience for many, but it introduces key limitations (lack of portability, non-ubiquitous playback and confusing usage rights) that are significant inhibitors for future growth. Let's face it, not a lot of people are going to invest in building downloaded movie libraries when it's difficult or impossible to do something basic like play a movie on 2 different TV sets in their home. Downloading's issues need to be solved quickly if it is going to take off.

Meanwhile, Disney's posture on TV Everywhere has created real questions about what the company's goals are in online content distribution. VideoNuze readers know that I've been bullish on TV Everywhere because it's a win for the 3 main constituencies - incumbent video providers (cable operators and telcos), cable TV networks and consumers. By forcefully advocating a plan to offer TV Everywhere as a value-add to existing subscribers, with no incremental fees, video providers laid the logical foundation for cable networks not to expect incremental distribution fees ("We're not charging anything extra, so you shouldn't expect to either.").

From my point of view, rationale cable network executives should be excited with the prospect of TV Everywhere, as it provides them an on-ramp to online distribution (which they've been shut out of to date, given the absence of a sound online business model and fearing a backlash from paying distributors if they offered their content for free streaming) while preserving their incumbent dual revenue-stream approach and expanding their advertising potential.

Nonetheless, Disney seems unsatisfied. CEO Iger continues to float the idea of incremental payments for online access, even suggesting it will launch its own subscription services. That could mean consumers face the prospect of paying twice for the same content, which is unrealistic even for ESPN's vaunted sports coverage. Disney has seen success with ESPN 360, its premium online service, but it offers distinct content (supplementary pro-sports coverage and niche sports coverage) from its flagship channels. And it should be noted that broadband ISPs pay for 360, not consumers directly.

I tend to believe we're seeing Steve Jobs's influence behind the scenes with both Keychest and Disney's posture on TV Everywhere. That's pure speculation on my part I'll admit. But "Think Different" is more than a slogan for Jobs and Apple. The company's ability to succeed by pursuing a non-conformist, innovative path (e.g. iPods, iTunes, iPhones, Macs, etc.) in the face of market norms is beyond dispute. Emboldened by Apple's success and understanding the strength of Disney's franchises as an insider suggests Jobs would encourage Disney not to be constrained by nascent industry-wide initiatives. At a minimum Apple provides Disney with a pretty compelling case study of how to succeed by zigging when others are zagging.

No question, Disney has incredible brands, and is probably in the best position among major content providers to influence how things will unfold in the digital era. And its investment in Hulu shows it is willing (albeit belatedly), to align with joint industry initiatives. Still, its Keychest project and resistance to TV Everywhere raise the possibility that in pursuing its own path it could not only miss out on or delay benefiting from the efforts of others in the industry, but could also be over-reaching with the result being consumer confusion and discontent. Disney holds strong cards, but it needs to be careful how it plays them.

What do you think? Post a comment now.

1Cast, an aggregator of short-form news-oriented video clips from premium content providers, is announcing its commercial launch today, joining others in the personalized video news category like Voxant, ClipSyndicate, RedLasso (for local news), plus other online news aggregators. Following its year-long private beta test, 1Cast is also announcing today a redesigned UI, distribution partnerships with boxee and Clearwire, the WiMax wireless provider, and a new entertainment category anchored by E! Entertainment and Style. Yesterday I caught up with Anthony Bontrager, 1Cast's CEO to learn more.

Anthony explained that 1Cast users are now consuming 3.5 million video clips/mo, contributing to average session lengths of 14 minutes on the desktop and 36 minutes on mobile devices. With average clips running 2-3 minutes apiece, that means users are watching a series of clips back-to-back when checking the site. 1Cast gives users the ability to set up their own "casts" selecting from preset categories and networks. The casts are automatically updated each time new content is added by 1Cast. I've played around with the site and have found it very straightforward to find and organize content. My only knock is that sometimes content is not that current. For example, even though the Red Sox played until Oct 11th when they lost the ALDS to the Angels, a search for "Boston Red Sox" on 1Cast listed the first video result from Aug 26th.

1Cast obtains clips from news providers like AFP, Barron's, BBC, MarketWatch and Reuters. For these providers 1Cast represents additional distribution and revenue. 1Cast is completely ad-supported, and Anthony said that it is selling 80% of its own ads, with YuMe selling the rest. CPMs are in the $25 range. Ads are primarily 15 second mid-rolls and post-rolls, with bumpers at the beginning of sessions. 1cast revenue shares with its content partners, but Anthony wouldn't disclose what percentage. He did point to a recent 6 figure campaign Infinity ran on the site as a major validation of 1Cast's model.

1Cast and the other personalized video aggregators play well to the short-form consumption behavior of online video users. This is even more so the case with mobile consumption. The distribution deals with boxee and Clearwire will help 1Cast gain more visibility and usage.

As I said when I first covered 1Cast in Aug '08, I think personalized video news is a very compelling concept, but my concern with 1Cast and the others specializing in this area is whether they can build sufficiently large audiences and scale their businesses.

Surely one of the most enduring questions I and others who watch the online video industry are asked (and in fact often ask ourselves) is: How can video management and publishing platform companies continue to launch, even as the space already seems so crowded?

Personally I've been hearing this question for at least 6 years, going back to when I consulted with Maven Networks, whose acquisition by Yahoo was one of the few industry exits (and likely the best from an investor ROI perspective, regardless of the fact that it was shut down little more than a year later as part of Yahoo's retrenching. With yesterday's launch of Episodic and the recent launch of Unicorn Media, plus last week's $10M Series C round by Ooyala, it's timely to once again try to make sense of all the activity in the platform space.

The best explanation I offer traces from my Econ 101 class: supply is expanding to meet demand. Over the past 10 years, there has been an enormous surge of interest in publishing online video by an incredible diversity of content providers. Importantly, interest by content providers has intensified in the last few years. I can vividly recall 2003 and 2004, trying to explain to leading content providers why online video was an important initiative to pursue. Still, their projects were often experimental and non-revenue producing. Contrast this with today, where every media company on earth now recognizes online video as a strategic priority.

But even as online video's prioritization has grown, many media companies don't have all the strategic technology building blocks in place. In fact, many continue to use home-brewed technology developed a while back. The range of video features needed continues to grow and evolve rapidly. Consider how requirements have expanded recently: live, as well as on-demand video; long-form programs as well as clips; paid, as well as ad-supported business models; mobile, as well broadband distribution; multiple bit rate, as well as single stream encoding; in-depth analytics as well as top-line metrics; widespread syndication as well as destination-site publishing; off-site, as well as on-site ad management. The list goes on and on.

As media company interest has grown, technology executives and investors have taken note. Venture capital firms continue to see online video as a high-growth industry (even if the revenue model for content providers is still developing, as are many of the platforms' own revenue models), with significant macro trends (e.g. changing consumer behavior, proliferation of devices, improved video quality, etc.) as fueling customer interest. Another important factor for platforms is rapidly declining development costs. As Noam Lovinsky, CEO of Episodic told me last week, open source and other development tools has made it cheaper than ever to enter the market with a solid product. With ever lower capital needs, a new video platform entrant that can grab its fair share of the market has the potential to produce an attractive ROI.

Of course all the noise in the platform space means media executives need to do their homework more rigorously than ever. I'm a strong believer that the only way to really understand how a video platform works, how well-supported it is and how well-matched it is to the content provider's needs is to vigorously test drive it. Hands-on use reveals how comprehensive a platform really is, or how comfortable its work flow is, or how well its APIs work. While I get a lot of exposure to the various platforms through the demos I experience and the questions I ask, I'll readily concede this is not the same as actually living with a platform day-in and day-out.

Another complicating factor is that while there are some companies purely focused on video management and publishing, there are many others who offer some of these features, while positioning themselves in adjacent or larger markets. When I add these companies in, then the list of participants that most often hits my radar would include thePlatform, Brightcove, Ooyala, Twistage, Digitalsmiths, Delve, KickApps, VMIX, Grab Networks, ExtendMedia, Cisco EOS, Irdeto, KIT Digital, Kaltura, blip.tv, Magnify.net, Fliqz, Gotuit, Move Networks, Multicast Media, WorldNow, Kyte, Endavo, Joost, Unicorn Media and Episodic (apologies to anyone I forgot). Again though, this list combines apples and oranges; some of these companies are direct competitors, some are partners with each other, some have a degree of overlap and so on.

There's a long list of platforms to choose from, yet I suspect the list will only get longer as online and mobile video continues to grow and mature. At the end of the day, who survives and succeeds will depend on having the best products, pricing the most attractively and actually winning profitable business.

What do you think? Post a comment now.

Please join me in Denver next week for 2 great discussion panels at the CTAM Summit.

First, VideoNuze will be hosting a breakfast on Monday, Oct. 26th from 7:30am-8:45am, where I'll be moderating a panel titled, "How Cable Succeeds in the Broadband Video Era." Panelists include:

• Ian Blaine - CEO, thePlatform
• Rebecca Glashow - SVP, Digital Media Distribution, Discovery Communications
• Bruce Leichtman - President & Principal Analyst, Leichtman Research Group, Inc.
• Chuck Seiber - VP, Marketing, Roku, Inc.

We'll be doing a deep dive on how the cable TV industry is navigating the shift to broadband video consumption, the key opportunities and challenges the industry faces, competitors to watch and important new technologies. If you're trying to understand the industry's broadband priorities or are trying to figure out how to partner with cable operators or programmers, this session is for you.

The breakfast's lead sponsor is thePlatform and supporting sponsors include ActiveVideo Networks, Akamai Technologies, ExtendMedia, Goodmail, KickApps and October Strategies.

Click here for more information about the VideoNuze breakfast and to register

Then on Tuesday, Oct. 27th, I'll be moderating the closing general session of the CTAM Summit itself from 1:00pm-2:15pm. Our topic is "Multi-Screen Access: Challenges & Opportunities." Panelists include:

• Paul Bascobert - Chief Marketing Officer, Dow Jones & Company
• Matt Bond - EVP, Content Acquisition, Comcast
• Andy Heller - Vice Chairman, Turner Broadcasting System, Inc.
• Jason Kilar - CEO, Hulu
• David Preschlack - EVP, Disney and ESPN Networks Affiliate U.S. Sales and Marketing
• Peter Stern - EVP & Chief Strategy Officer, Time Warner Cable

In this panel we'll be focus on exploring the opportunities and challenges each panelist's company faces working across screens, with a particular emphasis on the customer's experience. We'll examine how to create new value that meets consumers' shifting expectations, build successful business models (free, paid, hybrid), leverage new technologies, enhance existing revenue streams and deliver content in new ways. Each of these companies is a leader in their own right and the discussion promises to yield valuable lessons about how to succeed working across 3 screens.

Click here for more information about the CTAM Summit and to register

I look forward to seeing you in Denver!