VideoNuze Posts

Netflix and its CEO Reed Hastings are profiled in today's WSJ ("Netflix Boss Plots Life After the DVD"). Hastings offers a frank assessment of the where the DVD business stands, suggesting that as soon as four years from now DVDs-by-mail will start to decline. He notes however that DVDs will still be around in 20 years.

The article underscores Netflix's challenges in obtaining Hollywood movies for its Watch Instantly service. This is no surprise given the strict "windowing" business model Hollywood employs, along with its desire to preserve its DVD revenues as long as possible. In fact, last November, in this post, I acknowledged this as an obstacle unlikely to be resolved any time soon, and instead recommended that Netflix beef up its network TV offerings. Doing so would have a lot of upside as a high-quality VOD service that would generate immediate revenues for broadcasters.

The article also explores Netflix's aborted effort to build its own set-top box for its subscribers to receive streaming video. Hastings admits that he "fell in love with building boxes" in an attempt to emulate Apple's hardware-content delivery model. Eventually logic prevailed and practically on the eve of the box's launch Netflix pulled the plug and spun the project off to Roku, in which it made a $6M investment. While it was confusing to outsiders, it was the right move. Going into the box business seems like it would have been an example of "undisciplined pursuit of more," the second stage of the framework Jim Collins outlines in his new book, "How the Mighty Fall."

Netflix has an interesting road ahead of it, as it tries to transform itself from a hugely successful DVD rent-by mail company to an online deliverer of digital media. Hastings sizes up Netflix's odds saying "Almost no companies succeed at what we're doing." Despite his sobering tone, it's encouraging that he understands the significance of the challenges ahead. The question I continue to have is whether Netflix will ultimately tackle these challenges independently or as part of a larger entity (VideoNuze readers will recall my final prediction for 2009 - that Microsoft will acquire Netflix). One way or another Netflix is going to be a key player for some time to come.

What do you think? Post a comment now.

Brightcove and Qik are announcing a partnership this morning that further fuses the broadband and mobile video worlds. Under the partnership Qik users will be able to distribute their mobile-recorded video through Brightcove players if they have a Brightcove account. For Brightcove customers the deal will enables mobile recording as a new source of video into their catalogs.

Qik's client is one of a number of options for mobile video recording and uploading. As I wrote yesterday regarding the iPhone's new video recording capabilities, mobile video capture (and eventually full-featured editing) is poised to become a big activity, implying that few spontaneous significant live events will go unrecorded. We will see additional partnerships like Qik-Brightcove as mobile recording becomes a key source for content providers distributing video over both broadband and mobile.

After reading many different reviews over the weekend of the just-released iPhone 3G S, it's hard not to conclude that this device is going to be a serious catalyst for mobile video recording and consumption. Since I don't have an iPhone 3G S myself (I'm a Verizon subscriber), I've been relating to the iPhone phenomenon through friends and from what I've read.

Specifically, the iPhone 3G S is poised to push user-generated video content to a new level, as Daisy first explained on our podcast a week and a half ago. That's because, as reviews at TechCrunch, Business Insider and others have pointed out, the iPhone 3G S dramatically improves the convenience of the mobile video experience that Flip and other video cameras have pioneered. Certainly the biggest benefit is that iPhone 3G S owners will effectively have a low-end Flip in their pockets at all times, meaning they're ready to shoot video whenever they want, not just when they remembered to bring along their video camera.

I can relate to this because about 6 months ago I bought a Creative VadoHD video camera (basically a cheaper, somewhat more powerful version of the Flip MinoHD). It's a nifty little device, except for weak zoom and a lousy mic. But the big problem is that I never seem to have it with me at the spontaneous moment I want to shoot video. In other words, like my digital camera, it hasn't broken into the keys/wallet/cell phone must-have-when-leaving-the-house checklist. Nor do I expect it ever will.

To the contrary, iPhone 3G S owners will become conditioned to always having video capability with them. And because the iPhone 3G S is a connected device (unlike Flip, Vado or others), you can upload your videos immediately, to YouTube, of course (and with YouTube's AutoShare feature those videos can now be distributed to Facebook and Twitter as well). The iPhone 3G S comes with video editing on the device, allowing you to instantly share just what you want. Simply put, having robust video recording and editing subsumed into a cell phone/smartphone is huge.

Of course the iPhone 3G S isn't perfect, nor is it for everyone. The biggest hurdle is that you need to be an AT&T subscriber, which rules out a big chunk of the market, unless you're ready to switch. iPhone 3G S video is SD-only for now vs. widespread HD-quality on Flips and others (though that will no doubt change soon enough). Actual battery life is still uncertain, and I for one continue to wonder how willing people will be to risk draining their batteries shooting and watching video.

Still the iPhone 3G S brings us closer to a world where no significant spontaneous event will ever go unrecorded. Things like emergency airplane landings and instances of police brutality will have a much higher chance of being captured in the future. That makes me think about what role iPhone 3G S and other video-enabled smartphone users can have in the traditional news gathering process? How can they tap into this energy to reinvent their own models? We've already seen the success CNN is having with its iReports. What's next, as news gatherers evolve to the instantaneous mobile video world?

The iPhone continues to set the bar in mobile video. But with other smartphones from Palm, Blackberry and Google being introduced, there is much more innovation still ahead. For sure we are moving into an era when mobile recording and playback is going to become commonplace.

What do you think? Post a comment now.

Below is the 21st edition of the VideoNuze Report podcast, for June 19, 2009.

Daisy discusses highlights from the OMMA Video conference that she organized in NYC this week. Daisy recaps the keynote from Eileen Naughton, Google's director of media platforms in which she said that child YouTube sensation "Fred" is pulling down a six-figure income. She also reviews comments by Andy Markovitz, Kraft's digital marketing and media director who recommended the online video ad industry needs more scale, better targeting and more format choices. Those sentiments were echoed by other speakers. Daisy has more details here.

This week I discuss my post from yesterday, "Does It Actually Matter How Much Money YouTube is Losing?" I recognize I took a somewhat contrarian standpoint here, and admit it feels a bit irresponsible to suggest that YouTube's losses don't matter much (except to Google of course). It's always been great sport to debate how much money YouTube is losing. But the fact is, as long as Google has the financial wherewithal to sustain YouTube's losses (whatever they actually are), and deems the site strategic in the long run (which I strongly believe it is), then the size of its losses is really pretty much irrelevant. I know lots of you disagree with my assessment; feel free to post a comment and explain why!

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Guestimating how much money YouTube loses has been heavily debated since the company first burst on the scene. And even though YouTube has been part of Google for close to three years now, there are no signs the debate is letting up.

For example, this past April, Credit Suisse analyst Spencer Wang got a lot of attention asserting YouTube might lose $470M in 2009. Using these numbers, Fliqz CEO Benjamin Wayne generated a lot of buzz for his Business Insider post "YouTube is Doomed." Then earlier this week, in a much-noticed white paper, the IT outsourcing firm RampRate said the company's annual loss is closer to $174M, given a more accurate analysis of YouTube's true bandwidth costs.

No doubt the debate will continue to rage on. But does it really matter how much money YouTube is losing? I'd argue the answer is mainly no, with two caveats: first, that Google has the financial wherewithal to sustain YouTube's losses (whatever they may be), and second, that Google believes in YouTube's long-term strategic value.

With respect to Google's financial wherewithal, I think it's pretty much indisputable that Google can afford YouTube's losses, even if they exceeded Credit Suisse's estimate. In 2008 Google generated almost $8B in cash flow from operations, 36% more than in 2007. It currently has over $17B in cash. Its stock has bounced back from its $257/share low in the dark days of Dec. '08 to $415/share as of yesterday, translating to a market cap of over $130 billion and a P/E just north of 30. To be sure, Google is still a one-trick pony, relying on advertising alone to power its business model. But that pony has proven itself durable in the down economy and in the face of competitors, and the market has justifiably rewarded Google. If anyone thinks Google is being penalized for YouTube's estimated losses, I ask, where's the evidence?

Google's financial prowess gives it license to do what very few public companies are able to do: focus on the long-term. And that brings us to the second caveat, Google's belief in YouTube's long-term strategic value. Of course, none of us is privy to exactly what Google's executives believe on this front, but for my part, there's ample reason Google should be bullish, notwithstanding YouTube's current financial challenges.

First, and most important, YouTube maintains a dominant 40%+ share of online video viewership month in and month out, according to comScore. As I said in this recent post, YouTube has the best-known brand-name, deepest catalog, and best promotional reach of any online video site. In UGC it is in a rare "winner-take-all" position (even deep-pocketed Microsoft this week threw in the towel on Soapbox, its YouTube competitor). It would be unthinkable for anyone looking to upload video to not upload to YouTube, which is why the site gets an incredible 20 hours of video uploaded every minute.

What are these all worth in a market growing as fast as online video, where significant business model disruption lies ahead? A lot. YouTube would be the first partner of choice for any number of consumer and technology heavyweights now starting to slug it out for market share in the broadband era. Meanwhile, YouTube is well-entrenched in the cultural zeitgeist. It is the go to resource for presidential candidates, community organizers and lately, Iranian election protesters.

Sure, YouTube has its challenges. Hulu is crowding it out for access to premium content. UGC is a monetization drag (though a significant traffic driver). It doesn't have a bona fide or clearly articulated convergence strategy, as its recent YouTube XL initiative underscored. And it hasn't settled on an ad format that works. Regardless, YouTube has massive long-term strategic value. As long as Google recognizes this and has the financials to support it, then even in these recessionary times, how much money YouTube loses is largely irrelevant.

What do you think? Post a comment now.

Last week in "Robust Ecosystem Promises that Online Video Will Keep Looking Better and Better," I briefly mentioned a company called Aspera in the last paragraph. Aspera has been on my radar for quite some time, as I've had many industry colleagues mention to me the company's key role in the online video work flow process. Last week I got a chance to talk to Francois Quereuil, director of marketing to learn more.

Aspera addresses a key - and growing - operational problem in the online video work flow process: the time-consuming and resource-intensive step of moving around large video files, whether internally or to third-parties. This step has grown increasingly onerous as the number of files to be moved has expanded due to multiple bit rate encodings and multiple syndication partners. Further, the shift to higher-quality, HD video files has also made the file sizes bigger than ever.

When the company was started 5 years ago, Aspera's co-founders' premise was that the traditional approach for moving files, primarily by using FTP ("File Transfer Protocol"), was inherently inefficient because it was optimized for text and used TCP, the underlying protocol that most Internet traffic relies on. Rather than trying to improve FTP or TCP as others have done, they instead designed their own protocol called "fasp" (Fast and Secure Access Protocol). By installing Aspera's fasp software at the file's send and receive points, large files can be sent over existing network infrastructure. fasp can send files 10 to 100s of times faster than FTP (there are charts here that show Aspera's tests).

Francois explained that Warner Bros. became Aspera's initial customer, and that now every studio, CDN, aggregator, post-production house and many content providers use Aspera. A perfect example customer is Apple, which uses Aspera to ingest most of the HD video content it now makes available in iTunes. The media industry now accounts for 70% of Aspera's revenue, though there are other industries with large files such as government and biotech, for whom Aspera is also very appealing. For example, the oil and gas industry sends seismic data files that are terabytes in size using Aspera.

From the core fasp innovation, Aspera has built out a suite of products, including a web browser plug-in that lets remote users quickly upload their video files, a console product that allows multiple facilities running fasp to be centrally monitored and controlled, and a collaborative solution that allows drag and drop distribution of files to various end-points. Aspera seems well positioned to grow alongside increasing file complexity; the only company focusing on the media industry with file transfer acceleration that I'm aware of (and that Francois noted as competition) is Signiant, which I first wrote about here.

Clearly Aspera has already had a significant impact on powering high-quality video transfers and distribution, but what may still be ahead for the company could be even more interesting. Francois and I discussed the possibility that Aspera software could make its way into consumer devices like set-top boxes, gaming consoles, smartphones, etc. The company is in discussions with device manufacturers and service providers, but it is clearly still very early.

Still, the prospect of having Aspera-enabled devices could create what I think of as a "super-premium" video service, enabling near-instantaneous video-on-demand downloads. For over-the-top service providers this could be a meaningful differentiator. For incumbents like cable operators Aspera could have significant benefits in creating premium revenue opportunities and also capex savings by not having to continually upgrade their networks to deliver faster speeds and more capacity. Francois explained that fasp co-exists well with TCP-based networks and is distance-independent; this suggests that such premium services could be offered to all cable subscribers, not just those in select areas, and also that they could be centrally managed.

Exciting as the consumer-facing opportunity is, for now Aspera is mainly focused on its bread-and-butter business of improving the efficiency of large file transfers that are becoming more and more prevalent. Aspera is another perfect example of how innovative technologies up and down the stack are laying the foundation for an all-broadband future.

What do you think? Post a comment now.

Next Wednesday, June 24th at 1:30pm EDT / 10:30am PDT, I'll be presenting in a free webinar, "Demystifying Online Video Syndication." Video syndication continues to be one of the key trends in the online video market. I'll be sharing thoughts on where syndication is heading and where the main opportunities and challenges lie.

I've been writing about the emergence of the "syndicated video economy" for over a year now and during this time syndication has continued to grow in importance for all video content producers and technology providers.

The webinar is sponsored by Grab Networks, whose co-president Marcien Jenckes will present information about its grabMediaOS solution that enables a "Create Once, Publish Anywhere" business model. Grab works with hundreds of content providers and is one of the primary players in driving the video syndication market.

We have 260+ people registered for the webinar already, but there's plenty of room left. If you're trying to understand the syndication opportunity and identify the right solutions to fit your needs, this webinar is for you!

Register now for this free webinar

The promise of high-quality video delivery to mobile devices continues to crystallize as Clearwire is officially launching its 4G service with Motorola in the Atlanta metro area today. It's the third official market launch (after Baltimore and Portland, OR), though Las Vegas was quietly kicked off a couple weeks ago. The company is calling Atlanta, with almost 3 million people spread over 1,200 square miles, "the largest Internet hot spot in the U.S." Clearwire still plans to roll out 80 U.S. markets reaching 120 million people by end of 2010.

The company's CLEAR WiMax service aims to deliver download speeds in the 4-6 Mbps range, bursting up to 15 Mbps. That range would put CLEAR on a par with broadband speeds most Americans receive now from their cable companies. Recall that Clearwire, started by the wireless entrepreneur Craig McCaw, is now backed by 3 of the largest cable operators, Comcast, Time Warner Cable and Bright House Networks, along with other investors Intel, Google and Sprint.

Of course there are lots of applications that benefit from high-speed mobile delivery, but video is right at the top of the list. This was the context for last month's alliance announcement between Cisco and Clearwire, whereby Cisco would become the primary IP network infrastructure provider and also build 4G devices. Cisco has made no secret of the fact that IP-delivered video is the key growth driver for the company in the coming years. Its recent research projects that almost 64% of the world's mobile data traffic will be video by 2013, based on an annual growth rate of 150% for the next 5 years.

The proliferation of inexpensive smartphones, led by the iPhone, is creating a massive need for robust mobile broadband infrastructure that Clearwire and others are rushing to provide. Mobile video consumption will lag fixed broadband usage for some time to come, but all the elements are falling into place for it to grow rapidly.

What do you think? Post a comment now.